Blog post written by Churchill Knight Umbrella
Contractors and freelancers working on temporary assignments (inside IR35) are usually required to use an umbrella company for payroll purposes. Most recruitment agencies in the UK help make this easier for their candidates by handing them a Preferred Supplier Lists (PSL) – a list of payroll providers the candidates can register with. However, can you trust a recruitment agency’s PSL, and what should you do if you want to use an umbrella company that isn’t on it?
If you’re working inside IR35 – umbrella companies are a good option
Before we explore recruitment agency Preferred Supplier Lists, it’s essential to understand the role of umbrella companies for contractors and freelancers.
When working inside IR35, it’s unlikely a worker will be permitted to work through a limited company (personal service company) because they will be required to receive Pay As You Earn (income like an employee). Therefore, umbrella companies (specialist PAYE payroll providers) are a common and popular arrangement within the sector to ensure temporary workers are paid efficiently and compliantly.
Most recruitment agencies have a Preferred Supplier List in place
A PSL is a list of providers (in this case, umbrella companies) that an agency would recommend you to use for your payroll. Usually, expect to find between 3 and 10 umbrella companies on a PSL. The agency should have thoroughly vetted every umbrella on the PSL, and due diligence should be ongoing.
If you land a temporary assignment through an umbrella company, you’ll likely be asked to use an umbrella company that appears on the agency’s PSL. In many cases, if you’re not prepared to use an umbrella on the agency’s PSL – you may be asked to seek an alternative role elsewhere.
Responsible recruitment agencies will only feature compliant umbrella companies on their PSL for many reasons. However, some agencies have been found to refer candidates to unscrupulous umbrellas for financial gain. Keep reading, and we’ll summarise the pros and cons of recruitment agency PSLs so you know whether you can trust them or not.
One important thing that’s worth remembering – having a PSL is excellent, but agencies must ensure it’s up to date. In an ever-changing industry, new legislation and guidelines are rolled out frequently by the government, so it’s vital umbrella companies are up to speed, and agencies frequently vet the companies on their PSL.
Trustworthy recruitment agencies
Recruitment agencies that value compliance within the supply chain of temporary workers will only feature umbrella companies on their PSL that provide a fully-transparent service and abide by HMRC’s rules and regulations. They will ensure that their PSL exists to:
Protect workers – If you engage with a non-compliant umbrella company (potentially a tax avoidance scheme), you could face severe penalties from HMRC in the future. Therefore, by choosing a compliant umbrella, you will be paying the correct tax and national insurance contributions, and will have nothing to worry about.
Protect the agency – Legislation such as the Criminal Finances Act 2017 means that agencies can be held accountable for non-compliant referrals to tax avoidance arrangements – even by mistake. Therefore, responsible recruitment agencies will do everything within their power to ensure their PSL consists exclusively of compliant and trustworthy umbrella companies – or they could be liable.
Provide a high level of service for candidates – Many temporary workers are unfamiliar with umbrella companies or haven’t used them for very long. Therefore, by having a strict PSL in place, agencies can provide added value to their candidates while showcasing a high level of industry knowledge and awareness.
Ensure no unethical referrals are made to tax avoidance schemes – Tax avoidance schemes are evil for many reasons. As we’ve already mentioned, those who engage with them and the agency that makes an unethical referral can be severely punished. However, let’s not forget the unpaid tax that will fail to make it into the economy. Tax avoidance schemes cost the government hundreds of millions of pounds yearly and should never be supported.
Unethical recruitment agencies
Even if a recruitment agency doesn’t value compliance, it’s common for them to have a PSL in place for temporary workers. However, unlike a trustworthy recruitment agency (above), their PSL exists for entirely different reasons. It’s important you understand why unethical recruitment agencies have PSLs to ensure you can eliminate the risks of engaging with a non-compliant payroll provider.
Unethical agencies may have a PSL to:
Trick you into thinking you’re acting compliantly – Many tax avoidance schemes advertise themselves as “compliant” and “HMRC compliant” – nonsense. Therefore, some unethical agencies may encourage candidates to engage with unscrupulous umbrella companies because they will imply, they’re helping workers retain more money legitimately – which isn’t the case. Please don’t be misled.
To “act” professional – Unprofessional recruitment agencies may have a PSL in place, but it might consist of companies they’ve never truly worked with. It could be a misleading way to appear more professional than they are.
Many recruitment agencies only feature pre-assessed umbrella companies on their Preferred Supplier List
It’s becoming increasingly popular amongst recruitment agencies that value compliance, to have a PSL that consists exclusively of pre-assessed umbrella companies, like FCSA’s Accredited Members.
Not only does it ensure the PSL is full of compliant umbrellas that are operating ethically and legitimately, but it also saves recruitment agencies a tremendous amount of time because the due diligence (most of it) has been done for them. Obtaining FCSA accreditation is one thing, but umbrella companies must pass a strict annual assessment to maintain membership. Therefore, by signing up with an FCSA member – you’re joining a company that takes compliance extremely seriously.
What should you do if you’re agency doesn’t have a PSL?
It is extremely unlikely you’ll find an agency that doesn’t have a PSL. However, if you do, you’ll be required to find an umbrella company on your own accord. It’s a great idea to review the FCSA accredited members list as a starting point and ensure you conduct thorough due diligence.
What happens if you want to use an umbrella that isn’t on your agency’s PSL?
By all means, speak with your agency and ask them if they would be prepared to add your desired umbrella company to their PSL. While some agencies will be accommodating, others will say no. You will be required to choose an umbrella on the agency’s PSL – or look for another assignment through a different agency.
Picking a compliant umbrella company
Firstly, you should only seek temporary work through agencies that you trust. Once you have found a suitable role, ask yourself the following questions before registering with an umbrella company.
- Can they provide you with a realistic take home pay calculation that honestly reflects your working circumstances?
- Is the umbrella company accredited by the FCSA?
- Are they based in the United Kingdom?
- Do they have a well-established trading history?
- What are their online reviews like?
- Do they have a website that explains how umbrella companies work (with multiple references to Pay As You Earn tax)?
- Do they provide good value for money?
- What extras are included in their payroll service, such as Employee Benefits, Same Day Faster Payments, and more?
- Have any of your friends or colleagues used the umbrella you’re considering registering with, and what was their experience?
- Is the registration process thorough, and will it be easy to leave the umbrella company in the future?
Churchill Knight Umbrella
Founded by experts with over 20 years of experience in the contractor payroll sector, Churchill Knight Umbrella is the first-choice umbrella for thousands of temporary workers in the UK. As one of the leading umbrella companies, you will probably have noticed Churchill Knight Umbrella on several Preferred Supplier Lists. With years of experience and an FCSA accreditation – you’ll be in safe hands choosing them as your preferred umbrella company.
To learn more about Churchill Knight Umbrella, please visit their website, where you can request a free, tailored take-home pay calculation.