The Hidden Risk in Your Agency Payroll (Umbrella)

When outsourcing contractor payroll to an umbrella company via your recruitment agency, it's easy to assume everything is above board. After all, if you're not handling the payroll directly, it shouldn't be your problem – right? 

Unfortunately, that assumption can leave your business exposed to significant risk. 

Umbrella Payroll: Not Always What It Seems 

While many umbrella companies operate legitimately, the industry has also seen its share of non-compliant providers. These often promise high take-home pay by skirting tax rules or using disguised remuneration schemes. If your contractors are being paid through such methods, HMRC may come knocking – and it's not just the umbrella provider who could be held accountable. 

According to HMRC, tax avoidance schemes involving disguised remuneration cost the Treasury an estimated £1.2 billion between 2011 and 2021. Despite increased regulation, these schemes are still being promoted today. 

Why It Matters to Your Business 

Even if you pay your agency in good faith, your business can still face consequences if the supply chain isn’t compliant. HMRC is increasingly focused on supply chain due diligence, particularly where temporary labour is concerned. And ignorance is not a defence. 

• A 2022 report by the Loan Charge & Taxpayer Fairness APPG found that over 65% of contractors using non-compliant umbrellas were unaware they were part of a tax avoidance scheme. 
• Under the Criminal Finances Act 2017, your company could face prosecution if it fails to prevent the facilitation of tax evasion, even by third parties in your supply chain. 

Risks include: 

• Tax liabilities from non-compliant umbrella schemes 
• Reputational damage if contractors aren't paid correctly 
• Contractor disengagement due to inconsistent or late payment 
• Potential legal exposure under the Criminal Finances Act and IR35 supply chain rules 

The Due Diligence You Can’t Afford to Skip 

Many businesses rely on recruitment agencies to manage contractor payroll, but few ask the right questions about how that payroll is being run. Without full visibility or verification, you may unknowingly be linked to schemes that place your company at risk. 

Some key questions to consider: 

• Who is actually paying your contractors? 
• Are payslips transparent and compliant? 
• Is the umbrella provider on a recognised or audited list? 
• Can your agency provide proof of payroll compliance? 

How Owen Daniels Helps You Stay Compliant 

At Owen Daniels, we don't just provide recruitment services – we offer fully transparent and compliant payroll solutions. Whether we're managing contractor payroll directly or working with approved umbrella partners, we conduct thorough due diligence to protect your business. 

Our approach includes: 

• Strict supplier audits and approved partner lists 
• IR35 and off-payroll compliance checks across the supply chain 
• Clear, auditable payment processes for all contractors 
• Full transparency and documentation for peace of mind 

Protect Your Business from Payroll Pitfalls 

If you're relying on a recruitment partner to manage payroll, make sure they're doing it properly. The hidden risk of non-compliant umbrella schemes isn't just a contractor issue – it could become your problem too. 

Want to be sure your payroll process is watertight? 

Let’s talk. At Owen Daniels, we take compliance seriously, so you don’t have to worry.