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Unhappy contractors given no choice on umbrella companies

26 April 2022

A poll of self-employed contractors working through umbrella companies has found that the majority say they would rather work for themselves but they don't have a choice in the matter.

Over a third (34%) of UK self-employed workers operate through an umbrella company but new research from the Association of Independent Professionals and the Self-Employed (IPSE) has found that 61% of these workers say that there are no advantages in operating via an umbrella company.

The use of umbrella companies - which act as an intermediary between contractors and clients in the supply chain for payroll purposes - has grown substantially since the reforms to IR35 in the private sector in April 2021. In fact, 69% of umbrella company workers have stated that their clients insisted they work through an umbrella company since the changes to off-payroll working last year.

Almost two-thirds (63%) said that while they had some level of choice, they were only given a limited range of umbrella companies to choose from; one in 20 said they had to operate through an umbrella company that was allocated to them.

However, over half of umbrella company workers (57%) believe that their role is outside of IR35 and that the supply chain won't allow them to take the risk of working through their own limited company.

As a result, 74% of freelancers say they are "dissatisfied" about working via an umbrella company, while 50% are "very dissatisfied". When asked why they are dissatisfied, 80% of umbrella company workers cited the fact that they have to cover the liability for Employer's National Insurance, and where applicable, the Apprenticeship Levy, through a reduction in their day rate.

The report also found that 70% of umbrella company workers polled said they felt they have lost their independence and control over their own working arrangements since joining an umbrella company.

"The fundamental problem here is that people are being forced into pseudo- employment relationships they do not want," said Andy Chamberlain, director of policy at IPSE. "Since the IR35 changes came in a year ago, thousands who proudly consider themselves self-employed are being pushed into umbrella companies under disadvantageous conditions, often without even a choice over which umbrella company they use."

IPSE has shared its report with the government, following a recent call for evidence. "We hope that they listen to us and the many umbrella company workers that have failed to see the benefits of working via an umbrella company. In particular, we hope that they put forward recommendations that stop freelancers from being forced into working for umbrella companies that limit their independence and give them no real benefits."

Written by Rachel Miller.

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