LITRG report puts ‘umbrella’ companies under the spotlight

In the 150-page report, LITRG takes a deep dive into the world of labour market intermediaries, with a large focus on umbrella companies. The report is issued ahead of the 6 April 2021 off-payroll changes which are expected to see many private sector contractors shift away from working through their own limited companies towards working through an umbrella company.

LITRG’s research² included talking with sector experts, reviewing umbrella company offerings and posts in contractor forums and mining the group’s own query database for evidence.

The resulting report explores the benefits and complexities of umbrella companies. The report also explores other types of labour market intermediaries and the use of disguised remuneration schemes which are used to pay workers instead of traditional wages.

Victoria Todd, Head of LITRG, said:

“This report sheds light on an under-researched part of the labour market.

“Many people think that umbrella companies exist only to exploit the tax system and lower-paid workers. That is not the case. They perform a number of useful and legitimate functions such as taking on the payroll and HR function of temporary work agencies who can’t or won’t do this in-house and providing an alternative route for freelance contractors who would otherwise have to work through a limited company.

“However, there is a minority of umbrella companies whose bad practice and non-compliance sadly tarnishes the rest of the industry. This includes some set up specifically to operate disguised remuneration schemes.

“One of the outcomes of the public sector off-payroll changes in 2017 was a mass shift of contractors into loan arrangements via umbrella companies. This did not end well. Serious and urgent work is needed to prevent this happening again with the private sector off-payroll changes being introduced from April 2021. A single enforcement body for employment rights, as is being considered by the Government,³ would help but is not on its own sufficient.

“While disguised remuneration is very topical, in order to understand the experiences of most umbrella company workers, it is important to look beyond it. What we found when we did that was very interesting and thought-provoking and will certainly help shape our future work in this area.

“Looking across the landscape in a balanced way, it is clear from our research that the general poor reputation of umbrella companies does not uniformly match the reality and is not deserved by many in the sector. It is important that this is acknowledged and that the balance is redressed.

“We hope this report will be used widely: by government and workers alike to gain a better understanding about where the issues lie; by umbrella companies and the industry to improve standards; and by policymakers and advocates to work out where best to direct energy and resources going forward.”

Notes for editors

1. The full report can be found on the LITRG website at: https://www.litrg.org.uk/latest-news/reports/210324-labour-market-intermediaries
2. Research was mainly carried out in November 2020. This was also coupled with our own insight and observations of the sector.
3. In July 2019, the Government launched a consultation (Good work plan: establishing a new single enforcement body for employment rights, BEIS) on the creation of a single enforcement body. At the time of writing this report, the Government are still analysing feedback. See https://www.gov.uk/government/consultations/good-work-plan-establishing-a-new-single-enforcement-body-for-employment-rights
4. We would like to acknowledge the financial support received from the TUC in commissioning this report and to thank the many experts who shared their insight and comments. A full list can be found in the report.
5. Low Incomes Tax Reform Group
   The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.  
   The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact Hamant Verma, External Relations Officer, 0207 340 2702, [email protected]