35. By requiring existing contractors to use holding companies instead of directly employing these workers and putting them on their payrolls, employers will be able to avoid PAYE and labour law obligations. The motivation to use holding companies is clear. 18. In 2014, UCATT, now part of Unite the Union, published a report on holding companies operating in the construction sector and called on employment agencies to employ workers directly and not through umbrella companies.  In the same year, Frances O`Grady, General Secretary of the TUC, spoke in a parliamentary lobby of UCATT/Unite to demand a ban on exploiting umbrella companies.  Interestingly, Paul Sheraton, an entrepreneur, recently started a petition because he believes that “the law must change this to give entrepreneurs the choice of which holding company to choose.” You can view and sign the petition on the official website of Change.org. 8. The diagram above shows how the use of umbrella companies unnecessarily complicates working life. If employee A has a problem with their salary, vacation, or tax contributions, they should talk to holding company D, not the organization they work for, company C, or their recruitment agency, Agency B. For those who are in IR35, using a holding company is a popular choice as it ensures you pay the right taxes and social security to HMRC – to avoid unexpected and unwanted tax bills in the future.
However, the demand for umbrellas was sudden (in response to changes in work rules outside of payroll in the private and public sectors). A holding company is essentially a service paid for by you, the individual. As with any purchase you make with your own income, you have the choice and free will to choose the services you use based on your personal preferences. An agency may suggest a list of umbrellas, but they can`t dictate to you or dictate that you use one of them. If a holding company can prove that it is legitimately/compliant with the agency, there is no reason for it to reject the application. 17. Trade unions have been fighting against operating companies for about ten years. A recruitment agency may refuse to use the holding company you choose for a variety of reasons.
If you are a company that employs temporary workers, you should be aware of the potential dangers of mini-umbrella fraud in your labor supply chain. If you believe that the employer`s social security contributions have been incorrectly deducted from your gross salary or that other incorrect deductions have been made, contact your employer (the holding company). If this does not work, contact ACAS (Advisory, Conciliation and Arbitration Service), Citizens Advice or your union representative.  (2020). “Motion 48 Provide Teachers and Umbrella Societies”, TUC.  Temple, C. (December 2020). “Agency kickbacks: when contractors use their recruiter`s PSL umbrella company”, Contractor UK.
To make it easier for you to find a reliable umbrella company, we`ve compiled a list of our top 10 holding companies. They are all accredited by the FCSA or the professional passport. Some of them also have special offers at the moment – so check them out! The document should clearly state what the agency pays to the holding company and what you get from the holding company (your contractual rate). 31. Prior to the introduction of the IR35 rules, a person working through a limited liability company could have done essentially the same work as an employee, but could have paid a lower amount of income tax and social security contributions (NCI) by taking dividends instead of a salary. IR35 and non-payroll rules were introduced to nullify some of the tax benefits associated with dividends. Basically, these rules state that if an employee looks like an employee for the end customer they work for, they would have to pay the same tax as an employee (but that employee would not be entitled to the same labor rights as an “employee”). HMRC does not endorse or approve holding companies or tax avoidance schemes. To put it simply, if you get work through a reliable agency with a good reputation, they should have a PSL to protect you. Therefore, using an umbrella on their PSL is a good option – but always exercise due diligence. If you leave the holding company with an annual leave to which you are entitled, the company must pay you for it.
There is a plethora of agencies and umbrella companies operating within the school system. 55. The TUC does not consider that holding companies perform the necessary function on the labour market. The use of umbrella companies seems to have nothing to do with worker support, but rather with parts of the workforce supply chain that further reduce wage funds. Employment agencies should be obliged to pay and hire the employees they place with end customers. Some holding companies may claim that you can keep more of your income than others, which means it could be a disguised tax avoidance scheme.