The impact of IR35 has forced many contractors to use the services of umbrella companies for the first time, often through the agencies and recruiters, through which they advertise and provide their services.

Whilst there are many legitimate umbrella companies out there supporting freelancers and contractors, there is a growing concern about what has been labelled ‘mini-umbrella’ companies.

It is thought that as many as 600,000 temporary workers in the UK are employed through an umbrella company.

However, in some cases, there are fears that these organisations are being used to misappropriate billions of pounds in unpaid wages and tax fraud.

A Guardian investigation into some ‘mini-umbrella companies’ used to recruit freelancers for the Government’s pandemic test-and-trace system found that although people had been hired to work for the likes of Serco and G4s, a complex network of opaque smaller companies, often fronted by overseas directors had led to contractors losing out.

In it’s investigation, the newspaper found that some people had been repeatedly placed on an emergency tax code so that they were charged more tax than they owed and had to reclaim it at the end of the year, while some staff reported problems with obtaining holiday pay that they were due.

In fact, separate research indicates that umbrella companies have been estimated to withhold holiday pay worth £2.5 billion a year.

This often happens because workers do not actively claim it before the end of a tax year, meaning that it is often then claimed by unscrupulous umbrellas rather than workers themselves.

Several campaign groups have now written to the Government calling for action against these umbrella companies and a review of labour market enforcement to ensure contractors and freelancers aren’t abused.

While there are many effective and fair umbrella companies in operation, it is important you check that you are being paid fairly and within the current regulations. Please speak to us if you need advice on using an umbrella company.