Time running out for ‘too good to be true’ umbrella companies, locum social workers are warned

Tax law change will force recruitment agencies to 'police the system' or face criminal liability

tax document
Photo: Jeff Blackler/REX/Shutterstock

The use of umbrella companies by locum social workers will face much greater scrutiny, especially from recruitment agencies, due to new legislation that comes into force at the end of September.

The provisions in the Criminal Finances Act 2017, which become law on 30 September, primarily target companies rather than workers, making “relevant bodies” criminally liable for failing to prevent third-party associates facilitating tax evasion.

Tax expert Carolyn Walsh, from CWC Solutions, told Community Care that, from 1 October, “everyone and his dog will be required to police the system for HMRC”.

She said that the law change would be “more a problem for the agencies”, rather than locums, if they had referred people to umbrella companies “without monitoring the way that they operate”.

“The locums who have gone with shady umbrellas will be landed with tax demands and penalties,” she said, “but the agencies which carry on paying those umbrellas knowing they operate something other than straightforward PAYE schemes are liable under the new piece of legislation which carries hefty fines.”

Agencies say that HMRC’s increasing involvement in their industry means locums must not be complacent about their tax affairs. They claim locums risk investigations and financial penalties if they stay with ‘too good to be true’ umbrella schemes.

Tightening the rules

Following the tightening in April of so-called ‘IR35’ rules, most locum social workers have been prevented from operating via tax-minimising limited companies. Since then, umbrella companies, which act as de facto employers and process locums’ earnings, have been aggressively marketing their services. Some offer rates of take-home pay up to 90%.

Recruiters have previously reported umbrellas offering kickbacks to consultants in exchange for steering workers their way. Some locums have similarly complained about agencies pointing them in the direction of firms offering to tax them at suspiciously low levels.

‘Massive pay cuts’

Due to the imminent introduction of the new law, Facebook discussion groups used by locums have recently seen posts from social workers who have suddenly been told by their agencies to switch umbrellas, or run the risk of legal action from HMRC. As was the case after the IR35 changes in April, some workers are reporting that they face “massive” pay cuts.

Gary Chatfield, managing director of the HCL agency, described the new regime as a “nail in the coffin” for umbrella companies that avoid paying tax and said that firms like his were now “essentially doing the work of HMRC”.

“The onus is on my organisation to do enough due diligence that we are satisfied, that HMRC would be satisfied, that the correct amount of tax will be paid,” he said. It was no longer sufficient for locums simply to state in writing that they were not operating via any tax avoidance schemes, he said; agencies would in many cases have to see pay slips to back such statements up.

Chatfield added that HCL was also having to audit all smaller agencies it works with as a ‘managed vendor’ for local authorities, to ensure that they are not allowing locum social workers to use non-compliant umbrella companies. But, he said, some firms with hundreds of locums on their books were so far failing to provide the necessary assurances.

Risks to locums

Earlier this year, agencies and professional bodies voiced concerns about the dangers to locum social workers of staying with non-compliant umbrella companies. In 2016, a Community Care investigation revealed that some locums caught up in an earlier tax scam had been hit with retrospective bills of up to £45,000 by HMRC.

Sarah Kay, director of recruitment at the Taylor Davenport agency, said she was seeing far more social workers turning away from umbrella companies, especially dubious ones, in recent months. But she said she was still occasionally having to turn locums away because they wished to work via firms that were clearly not legitimate.

“Those firms will all have a client list,” she said, adding that HMRC already appeared to have shown interest in some umbrella schemes and would not find it difficult to establish who had been working through them.

Chatfield said that with the new legislation coming in, and agencies in far closer contact with HMRC than they had been previously, locum social workers still using “dodgy” umbrella companies faced a number of risks.

“The evidence we are seeing is that HMRC are becoming far more involved in the recruitment business as a whole – we are having regular contact where perhaps we wouldn’t have in the past, sending real-time information and working with them to make sure everything is correct,” he said. “I have been to meetings where they have been very forthright about their views on umbrella companies, where previously they would have sat on the fence.”

But Chatfield added that there was also a danger of non-compliant umbrella companies simply folding once they start being more aggressively policed, potentially leaving locums in the lurch.

“Locums could be left with [not only] a large tax bill, but pay that they can’t retrieve,” he said. “That’s a real concern.”

20 Responses to Time running out for ‘too good to be true’ umbrella companies, locum social workers are warned

  1. Angie September 27, 2017 at 9:09 pm #

    Due to the significant loss of earnings as a locum, I am currently applying for jobs that are no longer anything to do with being a Social Worker.
    We are being financially abused by the government therefore I will take my skills to an employer who appreciates the quality of work I provide.

    • Grace Easie-Edgar September 28, 2017 at 3:17 pm #

      who will be the winners ?

      • Stuart September 28, 2017 at 7:40 pm #

        I’m pretty sure if the changes encourage more social workers move from temping agencies to permanent posts the gerater stability should make service users the main beneficiaries.

    • Ben September 29, 2017 at 10:45 am #

      Financially abused? Have you not abused the system by avoiding tax for years but still use the services our tax goes towards, such as the NHS?

    • Annon September 29, 2017 at 3:12 pm #

      Brilliant, You’re being financially abused because you now have to pay tax like every other person who works.

      Be glad that you have abused this long enough already.

  2. Helen September 28, 2017 at 7:26 pm #

    It’s time to reduce locums this is still not enough. Many social workers work with the current pay grade, those with some integrity and morals and if LA stopped having to pay locums extortionate wages (out of tax payers money and from the state) they may actually be able to pay permanent staff a better wage. So I am all for more penalties on locums they work alongside good permanent staff who don’t get their pay and it’s not fair. We need to do more to stop locums and pay permanent workers the same (same in all public sector jobs)

    • Locum worker September 30, 2017 at 6:50 pm #

      I pay the same tax as a locum as I did as an employee of the la. My wage is marginally higher, but the la doesn’t pay if I go sick or get pregnant, or holidays or bank holidays. they also don’t have to go through costly redundancy procedures when they need to reduce the workforce.

      Yet I often come across bitter employees who think the grass is always greener. There’s pros & cons to both ways of working and a place for locums.

      Locum work works well for me, it allows me to manage a health condition & offers part time flexible work.

      Tax evasion & fraud is a separate issue to locum work

    • Peter October 2, 2017 at 10:03 pm #

      don’t talk rubbish

    • Opal lady October 6, 2017 at 7:07 am #

      Get your facts right and come out of your comfort zone. If we don’t work we don’t get! There’s no such thing as a locum on ‘long term sick’ which is certainly the case for some permanent workers.

      We all deserve decent pay. If it wasn’t for locums, there wouldn’t be a service.

  3. Ben Slater September 28, 2017 at 8:51 pm #

    My final day as a locum social worker with local authority is tomorrow, had enough of agencies stealing my earnings, umbrellas stealing my earnings and then the tax man expects me to pay higher tax than an employed person with none of the benefits. I haven’t had any annual leave this year, my last break was December 2016. If i’m going to work myself to death it may as well be for my own company!

    • Annon September 29, 2017 at 3:18 pm #

      ‘Agencies’ stealing your earnings. They pay you a fixed rate that would be the exact same if you set up your own company, the fee is agreed with the local authority and has nothing to do with your own earnings. The fact that you’re accusing everyone who is stealing your earnings is really immature and clearly you dont understand the purpose of a locum role. A SHORT TERM contract covering increased case loads, maternity or even to fill in for a permanent basis. You don’t pay more taxes than everyone else, you pay the exact same, if anything you’ve been getting away with lower taxes or getting around VAT for years.

    • Amy lou October 1, 2017 at 2:14 pm #

      Hey I am wandering if you are coming out of social
      work or going permanent?

  4. Sandra September 29, 2017 at 2:23 am #

    It seems to me this government is targeting the weakest link. They are now toughening up on star bucks, facebook or google who owes millions probably billions in taxes no lets go after the public sector agency workers. Although we dont have equal rights as locum lets get them to pay more taxes. This government is something else.

    • Annon September 29, 2017 at 3:20 pm #

      What Equal Rights do you not get as an agency worker? They’re not making you pay extra taxes, just the same as every other every day worker. Social Work shouldn’t be a preference of work for people to abuse the tax system end of.

      • Peter October 2, 2017 at 9:57 pm #

        I pay full paye and employees Ni. problem with locums like me is that you have to go through umberrrell company no other choice that means you also pay employers Ni which account for 4k a year of my salary. anyone tell me how that is fair.Hmrc going on about people not paying tax yet they give locums no choice. that’s why this country is a shambles bent government bent rules

        • Annon October 4, 2017 at 11:22 am #

          You’re not forced to go Umbrella. If you are with a well established Recruitment Agency you have the option to go purely ASYE as well.

  5. LongtimeSW September 29, 2017 at 3:16 pm #

    Sorry colleagues – this isn’t about umbrella companies or anything else – it is softening up the public sector for privatisation – forcing Locum’s into public sector or if they remain with agencies those agencies will bid to run social care – then cut pay and conditions anyway – wise up.

  6. David September 30, 2017 at 7:46 am #

    The experience has been locums have been overworked. Landed with heavy case loads complex in all aspects. Locums deliver and are Best Value. Time to have a kit-kat.

  7. Peter October 2, 2017 at 9:59 pm #

    well said

  8. Kent social worker October 13, 2017 at 10:59 pm #

    I agree with Longtime Social Worker, David and Peter. Yes, wise up colleagues, stop the in-house bickering – after all this is exactly what the government wants, and it is being handed to them on a plate. What we could be asking however is what do these agencies actually do? Not a lot I would hasten to wager.
    Permanent and Locum social workers make their choices, but we all work hard for our salaries, unlike agencies who try to call the shots to individual workers whilst exploiting them for doing what precisely?