Following the recent news that JSA Services Limited, part of the JSA Group, owes £10.6 million to HMRC and has entered into a voluntary arrangement and that two other “umbrella service providers” have left contractors unpaid, agencies should take care to ensure they are protected against umbrella failures, says the recruitment law specialist Lawspeed.
Adrian Marlowe, MD of Lawspeed and Chair of the recruiter trade body, the Association of Recruitment Consultancies, said “whilst agencies have quite rightly been focused on making sure they are not exposed to debt transfer arising under the Managed Services Legislation, it is just as, if not more, important for agencies to make sure that have a fall back position if the umbrella they are dealing with fails to pay the worker. Claims of compliance by an umbrella should not lull the agency into a sense of security – as recent events have shown that sense can be false.”
The umbrella industry is not regulated and there are few checks and balances in place. All umbrellas claim to comply yet the issue of incorrect payment of expenses in particular is a current focus of concern for HMRC. Where an HMRC investigation establishes that rules have been incorrectly applied by umbrellas, a demand for payment of correct levels of tax usually quickly follows. That can lead to an insolvency situation and the potential for the umbrella to simply fold. In those circumstances it is entirely possible that monies received in from agencies can be used to pay off secured creditors and HMRC before the worker gets a dime – leaving the agency to face the brunt of the worker’s complaints, and everyone in the chain unhappy.
Adrian went on to say “given HMRC’s current policy of investigation it is crucial that agencies ensure they have correct procedures and contracts in place. Agencies should never rely on 3rd party accreditation or the size of an organisation. Regrettably these recent events have served as a siren warning for all, and without doubt have again damaged the reputation of the umbrella industry.”
Lawspeed, which has a total focus on recruitment matters, has long warned of the risks associated with some umbrellas and has developed a range of services to help protect agencies.