Only a sixth of freelancers use umbrella companies

Jo Faragher

A huge proportion of freelancers and contractors are not using umbrella companies to help them manage their PAYE and tax requirements, according to a survey by Paraplus, part of de Poel.

The company’s survey of 2,000 UK freelancers found that only 15.5% were using payroll umbrella companies, meaning there could be more than 1.35m freelancers in the UK without this sort of support.

The survey found that workers’ main concerns for not using these services are around misunderstanding the benefits they can provide, and confusion over what they are paying for. Just over 11% said they were concerned about how umbrella companies manage their wages, while many highlighted that they were worried mistakes could be made, making them liable for tax demands at a later date.

Phil McDonald, Managing Director of Paraplus, said that these findings should be a “wake-up call for the umbrella industry”.

He said: “They show a clear requirement to educate prospective customers about why they need an umbrella company; it makes for tough reading that 26.5 per cent of freelancers don’t understand exactly what an umbrella company does and 14.5 per cent don’t even know that one could help them.”

Those respondents that did use umbrella companies were aware of the benefits, with ‘maximising income’ cited as a key advantage by 69%, and reduced administration cited by 19%.

However, McDonald believes the industry could do better: “The findings also demonstrate a real need to rebuild trust by raising industry standards,” he added. “For too long, a few rogue operators have given our industry a bad name. In actual fact, we should be there to help and support the freelancer; saving them time and money, whilst ensuring they’re compliant to legislative and HMRC guidelines. It’s time that we out players that don’t want to play by the rules to restore trust with the people that matter most – our customers.”