If you&rsquo;ve been following the conversation around tax compliance, you&rsquo;ll know that umbrella companies are under more scrutiny than ever before. They've played a big role in recruitment, but the tides are changing, so let's take a closer look at what's going on.
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What&rsquo;s behind the shift?
Pre-general election, Labour&rsquo;s proposals pointed to a major push for stricter tax compliance, with a particular focus on umbrella companies. Their manifesto published plans for an &pound;855 million boost to HMRC&rsquo;s budget, adding 5,000 new compliance officers, and deploying AI to spot tax irregularities in labour supply chains. The aim? Ensuring everyone pays their fair share, from contractors to those responsible for paying them.
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And with &lsquo;chain liability&rsquo; likely on Labour&rsquo;s radar, staffing companies and end users still using umbrella arrangements could be held accountable for unpaid taxes. In this month&rsquo;s blog, we&rsquo;ll dive into why moving away from umbrella companies is a smart choice &ndash; and why it might be time for you to consider it too.
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Tax complications you can't (afford to) ignore
Many recruitment agencies routinely use umbrella companies to streamline their tax processes, but non-compliance with HMRC regulations can turn this into a costly issue. Because workers employed through umbrella companies aren&rsquo;t technically employed by clients or their recruitment agency, this layer of separation can expose businesses to unexpected financial and legal risks. If things go wrong, you could face backdated tax bills, interest, and fines. Here are the five most common pitfalls:
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<li class="MsoNormal" style="margin-bottom: 0cm; text-align: justify; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;">IR35 misclassification: If a worker is wrongly classified outside IR35, your business could be liable for unpaid taxes and National Insurance.</li>
<li class="MsoNormal" style="margin-bottom: 0cm; text-align: justify; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;">Non-payment of NICs: Umbrella companies that underreport earnings may leave your business responsible for backdated National Insurance contributions.</li>
<li class="MsoNormal" style="margin-bottom: 0cm; text-align: justify; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;">VAT fraud and mini-umbrella companies (MUC): Engaging with MUCs involved in VAT fraud could result in your business facing unpaid tax claims from HMRC.</li>
<li class="MsoNormal" style="margin-bottom: 0cm; text-align: justify; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;">Holiday pay non-compliance: Mismanagement of holiday pay by umbrella companies can lead to incorrect tax deductions and potential investigations into your business.</li>
<li class="MsoNormal" style="margin-bottom: 0cm; text-align: justify; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt;">Failure to deduct income tax (PAYE): Offshore payment schemes may leave your business exposed to unpaid income taxes and fines.</li>
</ul>
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The lowdown on the legal risks
The legal framework surrounding umbrella companies and temporary labour is constantly changing, and keeping up with the rules can be tricky. Recent changes, such as IR35 reforms, have put more focus on how contractors and temp workers are paid, ensuring those who should be classified as employees are paying the correct amount of tax. If an umbrella company isn&rsquo;t following the rules - intentionally or not - the buck could stop with your business. You may face legal issues, regulatory fines, or even reputational damage for being associated with somewhat questionable practices. With agencies and umbrella companies sometimes operating in grey areas, it&rsquo;s a significant risk that can have long-lasting consequences.
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How worker satisfaction affects your bottom line
Involving umbrella companies can often muddy the waters. Workers sometimes don&rsquo;t understand how their wages are calculated or why certain deductions are made - and if something goes wrong, the blame can bounce between the agency and the umbrella company. This lack of transparency can lead to mistrust and complaints from workers who feel short-changed, even when you&rsquo;re not paying them directly. And unhappy workers can have a direct impact on the quality of work they provide to your business. High dissatisfaction leads to poor performance, low engagement, and the constant need to rehire and retrain, creating a revolving door of temporary workers that hurts productivity, service, and ultimately your company&rsquo;s profitability.
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When your reputation is at stake
As more stories of malpractice and exploitation surrounding umbrella companies surface in the media, there&rsquo;s a growing negative perception around businesses that engage with them. If your company is tied to poor pay practices or exploitation, it could hurt your brand, making it harder to attract talent in the future and leave clients and customers questioning whether they want to work with you.
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There&rsquo;s an alternative&hellip;
For a long time, umbrella companies have offered an easy route for handling payroll and taxes, but the landscape is changing fast. Labour has made it clear that compliance will be key, and there&rsquo;s no room for ambiguity. The good news? There&rsquo;s a simple fix: opt for PAYE (Pay As You Earn) when working with recruitment agencies. This means workers are directly employed under PAYE, ensuring tax compliance and fewer headaches for your business. It also cuts down on any risk of backdated tax issues. Many agencies offer PAYE solutions &ndash; including gap personnel group - and choosing one helps build trust with temporary staff, boosting satisfaction and productivity.
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<a name="_Hlk30598698"></a>Did you know there are over 170 regulations affecting the UK payroll industry, with a couple of changes introduced every year? These are governed by a variety of agencies including HMRC, GLAA, and The Pensions Regulator, in addition to Council departments, the DWP, and Child Maintenance Service. All require different information, to be delivered against varying deadlines, and through diverse methods of communication. And the legislation varies depending on employment type.
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For us, it&rsquo;s about staying ahead of the curve. Last year our internal payroll team maintained an error rate of less than 0.1% whilst processing almost 50,000 individual workers through our payroll system. They&rsquo;re keeping a close eye on new regulations to make sure we continue to offer a service that&rsquo;s both ethical and reliable, no matter what changes come our way. If you're a business looking to navigate this landscape, or just want advice on ensuring your workforce is fully compliant, get in touch today. We&rsquo;re here to help with umbrella-free solutions.

Are umbrella companies on their last legs? Here's what you need to know

2024 UK Budget announcement brought forward a number of changes set to make a real impact on the labour market. As always, we&rsquo;re keeping a close eye on what these changes mean for you and your workforce, and we&rsquo;ve pulled together the key points from the budget to help you understand the road ahead. From employment-related shifts to broader financial measures that could affect everything from staffing costs to business planning, here&rsquo;s a rundown of what you need to know.
<h3 class="MsoNormal">Increases to employers' national insurance costs</h3>
As expected, the headline change and biggest revenue raiser came in the form of changes to employers' national insurance contributions (NIC). With effect from April 2025:
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<li class="MsoNormal" style="color: #242c52;">the rate of employers' NIC will rise to 15% from the current 13.8%</li>
<li class="MsoNormal" style="color: #242c52;">the &lsquo;secondary threshold&rsquo;, above which employers' NIC is payable, will drop from &pound;9,100 annually to &pound;5,000, resulting in an additional &pound;4,100 potentially subject to the new 15% rate.</li>
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Combined with the increase in NLW/ NMW rates announced, employers are faced with a twofold hit on their employment costs.&nbsp;
On a more positive note, an increase in Employment Allowance from &pound;5,000 to &pound;10,500 from April 2025 helps in supporting smaller employers with these additional costs.&nbsp;
<h3 class="MsoNormal">National Minimum / Living Wage</h3>
The main rate of the NLW for those aged 21+ will increase by 6.7% to &pound;12.21per hour from April 2025.
The Government also wishes to bring the 18-20 rate up to parity with the main rate. Steps towards this will begin with an increase of 16.3% to &pound;10/hour from April 2025, with more increases expected in the coming years.
In the short to medium term there is the potential for this to result in a decrease in the relative attractiveness of younger, less experienced workers to employers.
<h3 class="MsoNormal">Umbrella companies&nbsp;</h3>
During her Budget the Chancellor highlighted the significant tax losses derived from non-compliance of umbrella companies. The Government therefore intends to position responsibility for PAYE with agencies or, where there is no agency, with end users that engage umbrella companies.&nbsp;
The proposals will inevitably simplify the task otherwise faced by HMRC of navigating legal complexities around who is actually the employer but are likely to have far-reaching impacts on how the temporary labour market operates.
<h3 class="MsoNormal">Capital gains tax&nbsp;</h3>
Widely anticipated changes to&nbsp;<a style="color: #242c52;" href="https://www.rsmuk.com/what-we-offer/services/tax/private-client-and-family-wealth/capital-gains-tax">capital gains tax</a> (CGT) rates included increasing the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%, with effect from 30 October 2024.
Although the lifetime amount of gains eligible for&nbsp;<a style="color: #242c52;" href="https://www.rsmuk.com/what-we-offer/services/tax/private-client-and-family-wealth/business-asset-disposal-relief">business asset disposal relief</a> (BADR) remains at &pound;1m, the rate of CGT payable on such gains will increase from the current rate of 10% to 14% from 6 April 2025 and 18% from 6 April 2026.
<h3 class="MsoNormal">Inheritance tax&nbsp;</h3>
The Chancellor announced that the&nbsp;<a style="color: #242c52;" href="https://www.rsmuk.com/what-we-offer/services/tax/private-client-and-family-wealth/inheritance-tax">inheritance tax</a> (IHT) nil rate band (currently &pound;325,000) and residence nil rate band (&pound;175,000) are to remain frozen until 2030. However, there were sweeping changes to business property relief (BPR) and agricultural property relief (APR).
From 6 April 2026 the first &pound;1m of a claim for BPR and APR combined will continue to be exempt from IHT. Claims for BPR and APR in excess of &pound;1m will attract relief at 50%, giving an effective rate of IHT of 20%. There will also be relief from IHT on 50% of the value of shares held on the alternative investment market (AIM) giving an effective rate of IHT on the value of AIM shares of 20%.
<h3 class="MsoNormal">Pensions</h3>
Currently pensions are excluded from IHT. From April 2027, any value left in your personal pension pot on your death will be included in your IHT estate and taxed in the usual way.&nbsp;
<h3 class="MsoNormal">Income tax personal allowance and fiscal drag</h3>
The government has decided not to not extend the freeze on income tax and national insurance thresholds beyond April 2028. From April 2028, personal tax thresholds will once again increase by the rate of inflation.
<h3 class="MsoNormal">Stamp duty land tax</h3>
Buyers of second homes and buy-to-let properties in the UK are faced with an immediate increase in stamp duty land tax (SDLT). With effect from 31 October 2024, the higher rate for additional dwellings (HRAD) increases from 3% to 5%.
<h3 class="MsoNormal">Private equity</h3>
The Chancellor has opted for a staged approach to carried interest tax, raising the rate to 32% from April 2025 - much lower than the feared 45%. However, the main announcement was the delay of significant changes to carried interest taxation to bring it into the income tax framework. A more targeted, fairer, and simpler regime is promised, likely starting in April 2026.
<h3 class="MsoNormal">Business taxation</h3>
The Chancellor confirmed the main rate of corporation tax will remain at 25% for the life of this parliament.
On capital allowances, there is a commitment to retain permanent full expensing with the prospect of consultation on extending full expensing to leased assets, simplifying the legislation more broadly, and launching a consultation to review the effectiveness of land remediation relief.&nbsp;
<h3 class="MsoNormal">VAT and other indirect taxes&nbsp;</h3>
VAT-related announcements in the Chancellor&rsquo;s speech were limited to reconfirming that VAT will be added to private school fees with effect from 1 January 2025.&nbsp;&nbsp;
The Chancellor also announced increases to air passenger duty on economy short haul flights and private jets, and excise duty on tobacco. These increases were accompanied by more welcome announcements on extending the 5p cut on fuel duty for a further year, and a cut to duty on draft beer. Further low-profile tweaks to&nbsp;<a style="color: #242c52;" href="https://www.rsmuk.com/what-we-offer/services/tax/vat-and-indirect-tax">VAT and other indirect taxes</a> may emerge in the published detail following the Chancellor&rsquo;s speech.
<h3 class="MsoNormal">Supporting you through the changes</h3>
We&rsquo;re here to guide you through these legislative updates and will be ready to consult with you on how the new measures will impact your rates from April 2025. Our transparent pricing models &mdash; already factoring in Employers' National Insurance thresholds &mdash; are designed to adapt seamlessly, ensuring you have a clear and straightforward breakdown of costs.
Rest assured, our temporary workers are paid on a PAYE basis with no reliance on umbrella schemes, reflecting our commitment to being a compliant and reliable part of your supply chain.
As always, we&rsquo;ll continue to monitor any further developments closely and keep you updated with any new information. Please don&rsquo;t hesitate to reach out with questions or for additional support&mdash;we&rsquo;re here to help.
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Key budget announcements – what it might mean for you and your business

Peek-a-BOO, and welcome to this month&rsquo;s gap insight! With Halloween haunting us this week (eeek!) and Bonfire Night just around the corner, we&rsquo;re lighting up Q4 with some spooky sector insights from the employment, FMCG, manufacturing, warehousing, and waste sectors to keep you on track during this busy season. Ready for a treat (or a trick)? Keep on reading&hellip;
<h2 style="text-align: left;" data-pm-slice="1 1 []">gap news</h2>
Following the heartbreaking news about the potential closure of Zoe's Place in Liverpool, our Bids and Marketing team whipped up some tasty treats in the kitchen in a bid to raise some much needed funds. Zoe&rsquo;s Place are the UK&rsquo;s only baby hospice charity, supporting children age 0-5 with life limiting conditions. The hospices offer home-from-home care, with a superhero team of nurses and carers for the&nbsp;families when they need it most. If you&rsquo;d like to read more about the work <a style="color: #242c52;" tabindex="-1" href="https://www.linkedin.com/company/zoe%27s-place-baby-hospice/">Zoe's Place Baby Hospice, Liverpool</a> do, or you would like to make your own donation to support them in finding a new home, you can do so <a style="color: #242c52;" href="https://www.justgiving.com/campaign/zoesplaceliverpool-newhome">here.&nbsp;</a>
<h2 style="text-align: left;" data-pm-slice="1 1 []">In Employment&hellip;</h2>
Some businesses have hit pause on hiring and investment, holding out for the Autumn Budget on 30th&nbsp;October, to see if tax hikes are coming. Even though the economy had a small boost in August, there&rsquo;s still plenty of uncertainty for employers, especially around National Insurance changes. The International Investment Summit held in the City of London earlier this month was well-timed, as it allowed the Government to outline plans to boost investment in areas such as infrastructure and energy, just two weeks before Rachel Reeves unveils her first full Budget. Now, businesses are hoping the announcement will lay out the support they need to keep things moving in the right direction. Read more on what&rsquo;s expected and the potential outcomes&nbsp;<a style="color: #242c52;" href="https://www.bbc.co.uk/news/articles/c89l52pwwllo" target="_blank" rel="noopener">here</a>
<h2>Latest Employment Data...</h2>
This month&rsquo;s labour market figures show ongoing signs of cooling. Between July and August 2024, the number of payrolled employees decreased by 6,000 but increased by 203,000 over the year. Preliminary estimates for September indicate a further decline of 59,000, bringing the total to 30.3 million. The employment rate for June to August 2024 was 75.0%, up from the previous quarter but slightly lower than a year ago. Unemployment held at 4.0%, while job vacancies dropped by 42,000 to 857,000, marking the 26th consecutive period of decline.
Wage growth continued, with regular earnings up by 5.1% from June to August 2024, and total pay, including bonuses, up by 4.0%. Real wage growth, adjusted for inflation, was 2.2% for regular pay and 1.1% for total pay. In July, 42,000 working days were lost due to labour disputes, largely within health and social work sectors. Additionally, the Claimant Count for September increased to 1.792 million, influenced by changes to work search requirements affecting around 180,000 claimants.
For more details, read the full&nbsp;<a style="color: #242c52;" href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/employmentintheuk/october2024" target="_blank" rel="noopener">ONS labour market report</a>.
<h2>In FMCG...</h2>
<a style="color: #242c52;" href="https://www.greggs.co.uk/news/fizz-the-season-to-visit-the-greggs-champagne-bar" target="_blank" rel="noopener">Greggs is bringing some serious sparkle to Newcastle this Christmas with its first&nbsp;ever champagne bar</a>, which opened its doors this month in Fenwick&rsquo;s bustling Food Hall. Inspired by 1920s Paris wine bars, the bar pairs freshly baked Greggs&rsquo; favourites like sausage rolls and steak bakes with bubbly from France and Italy for a boujee twist. Whether you're sipping a glass of Perrier-Jou&euml;t with your pastry or indulging in cocktails like the Yum Yum Twist or the Cream &Eacute;clair, it's an unmissable experience. But don't wait too long - the fizz is only flowing until 31st December. Pop in and raise a glass before it&rsquo;s too late!
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And if that wasn&rsquo;t enough bakery news for you, don&rsquo;t worry &ndash; there&rsquo;s more (you know how us Brits just&nbsp;love a baked good). Aldi is ramping up its presence in the bakery market,&nbsp;rolling&nbsp;out further fresh in-store bakeries with everything from barms (or whatever you call them in your part of the world) and bagels, to sweet treats and pastries. It&rsquo;s been a slow start since launching in 2019, but the number of stores with bakeries has now jumped to 25, expanding across the South East and East of England. Meanwhile, Lidl is proving to be the (bread)winner in the current battle of the budget supermarkets, with its bakery and loyalty app helping it move ahead in the sales race - up 8.8% in the past year compared to Aldi&rsquo;s 1.8%. You can read more about the bakery battle&nbsp;<a style="color: #242c52;" href="https://www.thegrocer.co.uk/news/aldi-ramping-up-rollout-of-in-store-bakeries/696502.article" target="_blank" rel="noopener">here</a>.
<h2>In Manufacturing...</h2>
Go-Ahead, one of the UK's largest bus operators, has teamed up with bus manufacturer Wrightbus for a massive &pound;500 million investment to green up their fleet. Over the next three years, they&rsquo;ll be rolling out 1,200 new zero-emission buses, creating around 500 manufacturing jobs at Wrightbus and supporting another 2,000 jobs across the UK supply chain. This big move comes the same month as the International Investment Summit, with the government backing it as part of their push to boost the economy and clean up local transport. Read more about how this investment is driving growth and greener transport&nbsp;<a style="color: #242c52;" href="https://www.gov.uk/government/news/half-a-billion-pound-investment-in-electric-buses-to-spark-a-new-era-of-green-growth" target="_blank" rel="noopener">here</a>.
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<a style="color: #242c52;" href="https://www.newfoodmagazine.com/news/243754/strawberry-picking-robot-trialled-to-tackle-uk-labour-shortage/" target="_blank" rel="noopener">A strawberry-picking robot is being trialled in Essex</a>, and it could be a game changer for the UK&rsquo;s farming industry! Developed by researchers at the University of Essex and jam makers Wilkin &amp; Sons, the advanced bot can pluck a strawberry in just 2.5 seconds. What&rsquo;s even better is that it costs a fraction of the usual price &ndash; around &pound;10,000 compared to the &pound;150,000 for other crop-picking robots. Funded by a &pound;1.02 million Defra grant, the project aims to make robotic harvesting accessible for all farms, especially smaller ones struggling with labour shortages. And it&rsquo;s not stopping at strawberries - the robot&rsquo;s modular design means it could soon be picking onions, tomatoes, lettuce, and more. Wilkin &amp; Sons are thrilled to be involved in tackling what they see as the industry&rsquo;s biggest challenge. Keep an eye out for more innovation in the fields as the trial progresses.
<h2>In Warehousing...</h2>
InPost, the company behind thousands of parcel lockers across Europe, has announced its full acquisition of Menzies Distribution Group, the UK logistics firm. InPost already held a 30% share of Menzies, having bought it for &pound;49.3m last year. The Luxembourg-based company, who makes most of its profit in Poland, has seen its value rise significantly in recent months, becoming one of Europe&rsquo;s biggest 'last-mile solutions' operators. The acquisition will further strengthen InPost&rsquo;s position in the UK market, expanding its capabilities in parcel delivery and logistics. You can read the announcement in full&nbsp;<a style="color: #242c52;" href="https://inpost.eu/news-inpost-taking-full-control-over-menzies-express-and-newstrade" target="_blank" rel="noopener">here</a>.
<h2>In Waste and Recycling...</h2>
Burning household rubbish to generate electricity has become the UK&rsquo;s dirtiest form of power, according to a BBC analysis. Almost half of the rubbish from UK homes, in particular plastic, is being incinerated, creating greenhouse gases. While incineration was once seen as a cleaner alternative to landfill, the rise in plastic waste has made it a climate problem. Despite growing concerns and calls to stop building new incinerators, more are still being built, leaving councils stuck in long-term contracts. Critics say this is hurting recycling efforts and creating more pollution. Find out more about the UK's incineration issue and its impact&nbsp;<a style="color: #242c52;" href="https://www.bbc.co.uk/news/articles/cp3wxgje5pwo" target="_blank" rel="noopener">here</a>
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Preventing Illegal Working and Ensuring Effective Right to Work Policies
Online event: 5th Nov 2024
Get your tickets&nbsp;<a style="color: #242c52;" href="https://web.cvent.com/event/ce6acb5c-734a-44a6-a9a4-4d6e2ead5640/summary" target="_blank" rel="noopener">here</a>.
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Complying with the GLAA Licensing Standards&nbsp;
Online event: 19th Nov 2024
Get your tickets&nbsp;<a style="color: #242c52;" href="https://www.eventbrite.co.uk/e/alp-academy-complying-with-glaa-licensing-standards-tickets-1010410624377?aff=oddtdtcreator" target="_blank" rel="noopener">here</a>.
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Are umbrella companies on their last legs? Here's what you need to know

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Are umbrella companies on their last legs? Here's what you need to know

Key budget announcements – what it might mean for you and your business

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