Guest Post

The Relationship between Recruitment Agencies & Umbrella Companies

Below is a guest post by Gary Butterworth of Zeva provides an interesting discussion on the changing relations between agency and umbrella companies.

Where it started…and the rise of compliance…

Historically, agencies chose payment providers solely for financial gain rather than for the benefit of the worker, often without any regard as to the legal niceties involved.

With the advent of Transfer of Debt legislation, agencies are starting to take a greater interest in the workings of the Umbrella and Subcontracting companies. Now it had become a matter of personal risk.

As a company we invested heavily in compliance, and at times wondered if we had backed the wrong horse. But slowly and surely, more and more agencies are endeavoring to ensure that their providers are compliant, knowing that any charges for underpayment in tax, may eventually end up on their doorstep.

Unfortunately there is no kite mark in our industry, and very little guidance is given by the HMRC, or even the REC.  Agencies are struggling to discover just what good practice is, and how to make sure their provider is actually doing what he says he does?

Times are hard in the recruitment industry, but it’s even harder at the moment for the taxman. It isn’t going to take long for him to realise that there is a fix going on, and he isn’t getting all the money he thinks he deserves. In time there will be some high profile cases, and examples will be set.

Many of our customers have sensed this change in the wind and are keen to make sure that they are not the example. We work very closely with our customers, and where in the past they felt safer in ‘not knowing’ now an increasing number sleep better in their beds in the knowledge that proper compliance is not just offered, but can be proven on a day-to-day basis. After all there are not many Umbrella or Subcontracting companies out there that say they are not compliant, so make them prove it!

There are benefits to both the agency and the worker using a company such as ourselves, but only if that company acts within the rules. Step outside these rules, and it just becomes a tax evasion scheme, and ignorance will be no excuse.

In the next couple of years we predict a reduction in the number of providers in our field, with the demise of the less stringent. Non-compliance is not a long term strategy.


  1. FPS Group has been established for 15 years now and offers temporary workers a compliant, secure and convenient way to get paid whilst working on contract in the UK.

    FPS is licensed by the Isle of Man Financial Supervision Commission as a licensed corporate services provider. Umbrella companies administered by FPS are UK incorporated companies that are registered with HMRC for PAYE and NICS.

    FPS puts compliance at the heart of everything it does, and must adhere to the highest standards of business practice in order to retain its corporate service provider licence, as such we have a dedicated compliance team who work hard to ensure standards remain at a high level and in addition to this we have developed our processes and procedures for UK umbrella companies in consultation with HMRC. FPS only provides an umbrella service so there is no threat of IR35 with our companies.

    From recent discussions that we have had with agencies, we have learned that many have become concerned about the financial stability of umbrella providers, this is in the wake of several providers experiencing financial issues. We can assure all agencies that payments from them to FPS administered umbrella companies are made directly into a UK client account rather than directly into the trading account of FPS. This provides protection to both recruitment companies and their candidates that payment for assignments completed are not affected by the solvency of FPS.

  2. Hi There,

    I am one of the team leaders for a recruitment business in Australia called Milestone Search.

    I just wanted to let you know that myself and my team all subscribe to your blogs and genuinely enjoy reading them.

    Just thought you might like to know !


  3. Pulse Umbrella has always taken compliance extremely seriously. Apart from our popular distinctive service it has become one of our benchmarks within our company.

    The risks associated with non-compliance with tax legislation can be high. We are here to ensure that the pay of your contractors is always fully compliant with the law.

    We work closely with industry bodies to ensure that our processes and procedures are always up to date. We are audited through these bodies at least twice a year and we also use external auditors to ensure that we’re on top of everything!

    Legislation can be a worry; we’ll take that worry away from you

    * Managed Service / 3rd Party Debt Transference: As a business we know that you need to protect yourself at all times from unscrupulous providers putting your own business credibility and profitability at risk. Under this legislation you are potentially at risk of a transferred tax bill if one of your payroll providers is found to be operating as a Managed Service Company and HMRC are unable to recover outstanding tax from them. pulse is a PAYE umbrella company which prides itself on its compliance, we are categorically not a Managed Service Company and are completely prepared to submit to any questionnaires or compliance checks that you may wish us to complete.

    * IR35: As we run a PAYE payroll service and contractors become our employees there is no risk to them or you around IR35.

    * Minimum Wage Legislation: We are conscious of the fact that all employees, contract or PAYE, are entitled to the National Minimum Wage. Our expenses process takes into consideration the effect of claiming back legitimate business expenses, and the impact this will have on a contractor’s hourly rate. Expenses are reimbursed only within these limits, and if necessary we’ll hold expenses to the next payroll cycle. We cannot and will not pay below the minimum wage.

    To know more about our service of for any general enquires call our team on 0845 3055 405.

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