Umbrella companies
Contents |
[edit] Overview
Umbrella companies are commonly used to employ contractors in the UK, sometimes via recruitment agencies.
Effectively the contractor becomes an employee of the umbrella company and is assigned to work for construction clients. The umbrella company takes on the administrative burden of payrolls, taxation, timesheets, insurance, invoicing, and so on. Where they are used, the recruitment agencies source the appropriate skills required by the construction client.
The use of umbrella companies can:
- Give clients greater flexibility in the contractors that it uses.
- Reduce the potential liabilities and responsibilities of recruitment agencies.
- Reduce the administrative burden for contractors.
- Offer potential benefits in the expenses that contractors can claim (such as travel and accommodation), although these expenses are still subject to HMRC rules.
Umbrella companies can be seen as a means for helping contractors comply with intermediaries legislation (IR35), introduced in 2000, which restricts the ability of contractors to claim that they are self-employed (and so reduce their PAYE liabilities) when they are effectively employees. See Intermediaries legislation for more information.
The use of umbrella companies has increased following the introduction of legislation in April 2014 that treats payroll companies as employers, requiring that they subject workers to tax and employee National Insurance Contributions (NICs) deductions at source and introducing a new liability to pay employer NICs. This change was introduced as the government believed that ‘employment intermediaries’, or ‘payroll companies’ were being used to enable workers to falsely claim that they were self-employed sub-contractors when in fact they were permanent, full-time employees. This allowed them to reduce their employment taxes and obligations. See payroll companies for more information.
The move to use umbrella companies has been criticised as employees effectively pay both employee and employer NICs, may not be paid during holidays and may be paid largely through expenses, the eligibility of which is subject to scrutiny by HMRC.
[edit] Updates
[edit] 2015
In the 2015 Budget, Chancellor George Osborne announced '...we will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence – while we protect those genuinely self-employed' (ref. Chancellor George Osborne's Budget 2015 speech 18 March 2015).
From 6 April 2015, businesses providing two or more workers without operating PAYE must report their details, details of the position and of payments to HMRC.
[edit] 2016
In September 2016, it was reported that the Union of Construction, Allied Trades and Technicians (UCATT) was encouraging members to down tools to protest about umbrella companies, saying “...workers are sick and tired of paying umbrella companies and this campaign will show them that by undertaking a bit of collective action they can do something about it.”
[edit] 2018
In September 2018, the union Unite called for the government to crack down on abuses relating to umbrella companies and the apprenticeship levy which was introduced in 2017. The levy applies to any company with a payroll of more than £3 million. Those companies must pay 0.5% of payroll costs in tax to help fund apprenticeships.
According to Unite, some self-employed construction workers are having the levy deducted from their pay by employment agencies and umbrella companies.
Unite assistant general secretary Gail Cartmail said: “The most unscrupulous umbrella companies and agencies are deliberately undermining the apprentice levy by forcing workers to pay something which is supposed to be their responsibility.
“The government must immediately look at this scam and introduce measures to prevent workers from being charged in this way. If the government fails to act, support and confidence in the apprenticeship levy will be further undermined.”
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Licensing construction in the UK
As the latest report and proposal to licence builders reaches Parliament.
Building Safety Alliance golden thread guidance
Extensive excel checklist of information with guidance document freely accessible.
Fair Payment Code and other payment initiatives
For fair and late payments, need to work together to add value.
Pre-planning delivery programmes and delay penalties
Proposed for housebuilders in government reform: Speeding Up Build Out.
High street health: converting a building for healthcare uses
The benefits of health centres acting as new anchor sites in the high street.
The Remarkable Pinwill Sisters: from ‘lady woodcarvers’ to professionals. Book review.
Skills gap and investment returns on apprenticeships
ECA welcomes new reports from JTL Training and The Electrotechnical Skills Partnership.
Committee report criticises UK retrofit schemes
CIOB responds to UK’s Energy Security and Net Zero Committee report.
Design and construction industry podcasts
Professional development, practice, the pandemic, platforms and podcasts. Have we missed anything?
C20 Society; Buildings at Risk List 2025
10 more buildings published with updates on the past decade of buildings featured.
Boiler Upgrade Scheme and certifications consultation
Summary of government consultation, closing 11 June 2025.
Deputy editor of AT, Tim Fraser, discusses the newly formed society with its current chair, Chris Halligan MCIAT.
Barratt Lo-E passivhaus standard homes planned enmasse
With an initial 728 Lo-E homes across two sites and many more planned for the future.
Government urged to uphold Warm Homes commitment
ECA and industry bodies write to Government concerning its 13.2 billion Warm Homes manifesto commitment.
From project managers to rising stars, sustainability pioneers and more.
Places of Worship in Britain and Ireland, 1929-1990. Book review.