Umbrella companies

17 September 2021

John Chaplin and Rob Woodward in our London Tax Group authored “Under an umbrella”, published by Taxation magazine on 19 August 2021.

Umbrella companies initially developed in the early part of the 21st century, partly in response to the

implementation of the intermediaries’ legislation (IR35) in 2000. They provide a way for businesses to

source workers they did not want to hire permanently, while the worker becomes an employee of the umbrella with the (then) added attraction of the ability to claim travel and subsistence expenses compared to the rules governing traditional temporary labour agency engagement. Tax-free travel and subsistence could be claimed, even between home and their placement site, provided the expectation was that placement did not exceed 24 months. In effect, the workers were engaged for defined contract periods, but with an overarching (umbrella) contract with the umbrella company.

Over time, the role of the umbrella company has evolved, with some agencies using them as a way to outsource the administrative obligations associated with hiring and paying the short-term workers their clients require, rather than simply making use of any tax breaks associated with umbrella employment.

The article includes sections on:

  • What is an umbrella company
  • Tax changes
  • Why are umbrella companies topical?
  • Risks businesses need to be aware of
  • Managing those risks.

Given that all umbrellas should perform one task in common – paying the worker compliantly – perhaps the most important question is ‘why can umbrella X supply the worker at a lower price than its competitors’, as this can often be an indication that all is not well.

Ultimately, therefore, it is a matter of undertaking research and acting on the findings. Most clients will not feel comfortable that they are capable of undertaking all these checks, but HMRC guidance should at least help them gather the facts and seek further advice as necessary.

For more information, or for assistance, please contact John Chaplin or Rob Woodward.