Bankruptcy of two umbrella companies highlights importance of due diligence for recruiters and contr

Bankruptcy of two umbrella companies highlights importance of due diligence for recruiters and contractors

Companies put into liquidation for not paying contractors’ tax

The recent high profile bankruptcy of two ‘umbrella’ companies highlights the importance of recruiters and contractors undertaking better due diligence of service providers before engaging their services, says giant group, the contractor services provider.

Two umbrella companies, Sunday Solutions and Bradbury & Co, were shut down by the Insolvency Service following complaints by IT contractors. Many of the 1,500 contractors are liable for unpaid tax running into thousands of pounds.

According to giant group, whilst it is encouraging that the authorities are stepping up their clampdown on non-compliant umbrella companies, it is crucial that recruiters and contractors check ‘umbrella’ companies thoroughly before engaging their services.

Matthew Brown, Managing Director of giant group, comments: “Using a reputable umbrella company is absolutely crucial, but with so many providers out there finding the right one is not straightforward. As a very minimum recruiters and contractors need to understand how the umbrella operates in line with current legislation, does it give full employment rights to its workers, whether it has meaningful independent 3rd party audits, and whether it has the financial strength to continue to operate and pay its liabilities as they fall due.”

“This latter point will be even more important with the introduction of the Agency Workers Directive later this year where increased employment liabilities are likely. Compliance is such a complex area that thorough due diligence can be prohibitively time consuming and expensive.”

According to giant, recruiters and contractors can minimise costly due diligence by selecting an umbrella provider who is a member of the Freelancer and Contractor Services Association (FCSA). To become a member of the FCSA, umbrella companies have to adhere to a rigorous Code of Conduct, and submit to an annual compliance and site review carried out by KPMG. The report it compiles on each FCSA member is then sent annually to HMRC as part of an agreed process.

Matthew Brown says: “Recruiters and contractors can feel comfortable that FCSA members operate to the highest professional standards.”