Two employment tribunals have found that two umbrella companies made unlawful deductions from their employees whilst being FCSA-accredited. In a separate case, it has been found that a KC-approved ‘mini umbrella’ has cost taxpayers £50m through a network out of the Philippines
Two umbrella companies that were both members of the FCSA have been taking unlawful deductions from their workers. The umbrella firms in question were DNS Umbrella Ltd and Umbrella Company Ltd.
Confusion often arises regarding what umbrella firms and employment agencies mean when they use the non-statutory term “assignment rate”. The assignment rate is often referred to as the rate made up of the gross pay due to the contractors, plus the umbrella’s margin and other employment costs. It’s the rate paid to the umbrella company by the agency.
However, some umbrella companies have been caught charging workers taxes they are not liable to pay under the law, but rather the umbrella company is. The assignment rate should also clearly state how much is earmarked for holiday pay and how and when that will be paid or claimed by the worker. In some cases, it has been found that the umbrella has left out the holiday pay entitlement completely.
Where’s my holiday pay?
In the case, Mr M Binns v. Umbrella Company Limited the judge found Umbrella Company Limited was in breach of contract by not paying the claimant holiday pay calculated at the rate of 12.07% of the hourly rate of £25 (when working at Wakefield College) and £27.50 (when working with Trafford College) in addition to the hourly rate of £25 and £27.50.
Umbrella Company Limited has a 2.5-star rating on Google Reviews at the time of writing. The common theme of the publicly published complaints is that workers are chasing payments and/or submissions to HMRC that are not completed by the umbrella on time or deducted correctly. This has led to some workers getting fined by HMRC.
In the case of the same defendant against recruitment agency Morgan Hunt UK Limited, the judge found Mr. Binn’s complaint of a breach of regulation 5 of the Agency Workers Regulations in respect of annual leave entitlement after 12 weeks working at Wakefield College and then Trafford College respectively “well-founded”.
The compensation to the worker should be made known later this month.
Any workers that are or have worked for Umbrella Company Limited would be wise to get their payslips and contracts looked at by a compliance professional to ensure that they too were not cheated of holiday pay. Companies or organisations including Contractor Voice and PayePass should be able to help.
What is Regulation 5?
Regulation 5 stipulates that an agency worker is entitled to the same basic working and employment conditions as they would be entitled to for doing the same job had [she/he] been recruited by the hirer.
No government department or independent body has been tasked with policing and enforcing
the Regulations, it has been pointed out by a 2015 REC fact sheet on Agency Workers Regulations (2010). “Instead the Regulations will be enforced by agency workers pursuing claims in the Employment Tribunal. Such claims can be brought against the client or agency, depending on the particular breach in question. Generally, the liability will lie with the party that is responsible for the breach.”
For an agency to comply with Regulation 5 it must either obtain information from the
end-user client about the basic working terms and employment conditions in the client’s business or
takes reasonable steps to obtain the information. In some cases, the end client does not comply on matters including pay rate based on seniority or holiday pay.
What is rolled-up holiday pay?
Holiday pay should be paid for the time when annual leave is taken. An employer cannot include an amount for holiday pay in the hourly rate (known as ‘rolled-up holiday pay’). If a current contract still includes rolled-up pay, it needs to be re-negotiated, according to the government.
There’s guidance for calculating holiday pay for workers without fixed hours or pay, which includes several examples.
You can also contact the Advisory, Conciliation and Arbitration Service (Acas) with questions about general holiday pay issues.
Acas helpline
Telephone: 0300 123 11 00
Textphone: 18001 0300 123 1100
Monday to Friday, 8am to 6pm
Find out about call charges
Taxes umbrella workers are not supposed to pay
In a separate case, Mr Pajpani v. DNS Umbrella Limited and others, a judge found DNS had made an unlawful deduction from the claimant’s wages by deducting Employer’s National Insurance contributions and the Apprenticeship Levy during his assignment from 2 March 2021 until 27 May 2022.
The umbrella had deducted the sum of £513.49 per week in relation to Apprenticeship Levy and Employer’s National Insurance Contributions throughout the Claimant’s assignment (from 2 March 2021 to 27 May 2022). On this basis, the Claimant is owed the sum of £29,885.
Expert’s take on the two cases
Dave Chaplin, CEO of contracting authority ContractorCalculator says, “Getting the “assignment rate” right and explained properly to workers is the basics of running a compliant umbrella, and it’s surprising to read about the lack of correct compliance process in the tribunal decision.
“Umbrellas should ensure the supply chain gets it right, including an evidence trail ensuring the worker is fully informed about what their offered rate actually means if they are asked to work via an umbrella.
“The historical confusion over rates is nothing new, and the Government introduced the Key Information Document (KID) to help avoid confusion and promote transparency. The ‘assignment rate’ issue was also highlighted in the recent Umbrella Consultation Response by Government.
“With umbrella regulation likely to result in debt transfer to both agencies and clients, operational compliance is essential, in conjunction with real-time checking of all basic procedures and the money flows.”
KC-approved ‘mini umbrella’ costs taxpayers £50m
New information has been brought to light regarding a tax avoidance scheme which was allegedly approved by a KC barrister and is said to have avoided £50m worth of UK tax as a web of non-compliant mini umbrella companies.
The news highlights the perils of mini umbrella companies and the threat they pose to thousands of flexible workers and businesses engaging umbrella companies.
Tax Policy Associates reported that construction contractor, Anderson Group, allegedly formed at least 10,000 UK limited companies operating as mini umbrella companies – a mechanism formed with the sole aim of avoiding tax. The scheme was implemented through a company called Aspire Partnership, Tax Policy Associates has reported including a hyperlink to the company. What is particularly worrying is the language used on the site if the reports connecting Aspire to the tax avoidance scheme are to be true. One section on the site says “If you are struggling to keep on the right side of the law, Aspire can help keep you compliant…”
The backgrounds of the owners are not to be sniffed at either. According to their website, the Aspire Business Partnership was founded in 2010 by Alan Nolan, who “has spent most of his professional life working at HM Revenue and Customs and KPMG.”
“Alan’s aim was to create a team of professional business advisors who are able to provide sound, commercial advice in a way that is communicated effectively so that key decisions can be made collaboratively.”
Anderson’s connection to the scheme has been denied by the company, according to Tax Policy Associates. The CEO of Anderson “continues to deny that to us today, but the Guardian report had good evidence to the contrary” with details on the links between Anderson and the companies involved in the scheme in the UK and overseas.
Back in 2017, Dan Neidle, the founder of Tax Policy Associates, was a tax partner at law firm Clifford Chance. He was quoted in a 2017 Guardian article saying, he believed the scheme had been set up to avoid tax. He says in the article, “I am troubled by the involvement of multiple Philippine individuals, when there is no commercial or tax reason to involve anyone offshore. The obvious inference is that the purpose of choosing the Philippines was to hinder HMRC’s ability to investigate and recover any tax due.”
It has been previously reported that criminals have created hundreds of umbrella companies (known as mini umbrella companies) employing a small number of temporary workers through each. In creating multiple umbrella companies rather than engaging workers through one larger organisation, the company fraudulently claims tax reliefs only available to genuine small businesses, PayePass explains.
Mini umbrella companies see hundreds of millions, if not billions, slip through the cracks and workers generally have no idea anything is amiss.
Julia Kermode, CEO of PayePass
Of the 10,000 mini umbrella companies allegedly formed by Anderson Group, each was acquired by a different individual living in the Philippines, who also became the sole director, according to Neidle.
Julia Kermode, CEO of umbrella company compliance specialist, PayePass, says the latest reports are “shocking” with not nearly enough awareness about the perils of mini umbrella companies.
“What’s really worrying is how easily this tax avoidance scheme got away with it for so long, not to mention that it was apparently approved by a KC barrister,” says Kermode. “Many different failed tax schemes have relied on KC opinion, which perhaps should be a red flag in itself.”
“This story is just the tip of the iceberg, though. Mini umbrella companies see hundreds of millions, if not billions, slip through the cracks and workers generally have no idea anything is amiss,” according to Kermode.
“On top of the astonishing amount of tax avoided, these immoral schemes continue to tarnish the reputation of the entire umbrella industry which the government continues to drag its heels with regard to regulating,” she says.