Protect Your Agency: Safeguard Your Business Against Fraudulent Umbrella Companies
Why Compliance Matters More Than Ever
The rise in fraudulent umbrella companies has placed agencies in the spotlight, with new government measures making compliance a top priority. These changes mean agencies must be more vigilant than ever to protect their business, contractors, and reputation. Understanding these responsibilities is essential to staying ahead.
Government Crackdown on Non-Compliance
The updated guidelines released in November 2023 outline stricter rules for agencies working with umbrella companies. From April 2026, agencies closest to the client in the supply chain will bear responsibility for PAYE and NI liabilities. These changes are part of the government’s ongoing efforts to combat tax evasion and improve transparency within the umbrella sector.
Agencies failing to comply face significant penalties, including:
Prosecution for enabling tax evasion in the supply chain.
Denial of VAT recovery if connected to VAT fraud.
Financial penalties for using non-compliant umbrella companies.
Potential closure of the business or bans on directors by the Employment Agency Standards Inspectorate.
How to Stay Compliant
To protect your agency, taking proactive steps now is essential. Here are some best practices:
Understand Your Supply Chains: Familiarise yourself with all entities in your supply chain and their responsibilities.
Use HMRC’s Resources: Check their list of known tax avoidance schemes.
Create a Preferred Suppliers List (PSL): Partner only with umbrella companies that meet your compliance standards and review the list regularly.
Conduct Due Diligence: Ensure umbrella companies are transparent about how contractors are paid and engaged.
Choose Accredited Partners: Work with companies accredited by industry bodies like Professional Passport.
Report Issues Promptly: If you detect non-compliance, notify HMRC immediately to minimise risks.
Spotting Fraudulent Umbrella Companies
Fraudulent umbrellas often operate under the radar, making it crucial to recognise potential red flags. Look out for:
Suspiciously Low Fees: Offers that seem too good to be true often hide hidden costs or non-compliance.
Ambiguous Payslips: Unclear deductions, unexpected fees, or inconsistent company names are warning signs.
High Worker Turnover: Mini umbrellas frequently move workers between companies to avoid detection.
Offshore Directors: Offshore arrangements or frequent name changes are often linked to tax evasion.
Missing Accreditations: Lack of approval from recognised industry bodies is a significant red flag. Note that HMRC does not officially approve umbrella companies, so claims suggesting otherwise are false.
Transparency and clarity are key indicators of a trustworthy umbrella company. If you encounter hidden costs, vague answers, or difficulty contacting representatives, it’s best to avoid them.
New Tools to Help Agencies
To aid transparency, the government has introduced the ‘Work Out Pay’ tool. This digital tool helps agencies and umbrella employees calculate gross and net pay while identifying the correct deductions. This innovation is a step towards making payroll practices more transparent, helping agencies spot potential non-compliance more easily.
Partnering with WellPay: Compliance You Can Trust
At WellPay, we take compliance seriously. It’s embedded in everything we do. As a Professional Passport-approved umbrella company, we offer transparent processes, reliable payments, and expert guidance to support your agency. With our dedication to ethical practices, you can trust us to keep your business protected and your contractors happy.
Get Expert Advice Today
Don’t leave your compliance to chance. Contact WellPay today to learn how we can help you avoid fraudulent umbrella companies and safeguard your agency’s future.
