Avoiding Tax Avoidance: Self Defence for Supply Teaching Agencies

Umbrella companies

Being employed by an umbrella company remains the best option for most supply teachers, but all umbrella companies are not equal. The industry still contains unscrupulous companies who are willing to exploit supply teachers and put them, and any recruiter working with them, at risk of investigation, prosecution and financial ruin at the hands of HMRC.

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As a recruiter, it’s vital that you avoid involvement with non-compliant umbrella companies, for the sake of your business and for the teachers and schools you serve. This can be difficult, particularly when your teachers have been sold the lie already and are determined to “follow the money”.

It’s a significant issue; following 2017’s reform of IR35 in the public sector we saw an explosion of non-compliant companies, with over 500 new “umbrella companies” that were actually tax avoidance schemes being set up.

There can be no doubt that they’re still out there, and still working in the education sector. We regularly speak to supply teachers who have been made unrealistic promises by a non-compliant umbrella company. Our experts are usually able to explain what’s happening, reset the teacher’s expectations and stop them making a terrible mistake, but only the lucky few find their way to us.

All these types of companies are correctly referred to as umbrella companies.

Umbrella companies

How can you help your teachers avoid non-compliant umbrella companies?

Obviously, it’s up to you as a recruiter to decide which umbrella companies you’re willing to work with, and we strongly recommend using a Preferred Supplier List (PSL) of FCSA Accredited companies as this is the best way to protect your business and your teachers. That said, when your teachers ask why you won’t work with the umbrella company that offers to pay them the most, “because we say so” might not be enough. Here are some signs that suggest your teacher’s preferred umbrella might be non-compliant.

They’re offering to pay the teacher more

If your teacher has been quoted a higher take-home figure than elsewhere, this is a warning sign. All compliant umbrella companies operate under the same laws and there’s no way one umbrella can pay significantly more than another without breaking those laws. The only difference between umbrella company quotes should be the margin they take, and this is usually not enough to make much difference to the teacher’s pay.

They claim to be able to reduce the teacher’s tax bill

This follows on from the first point, but it’s so common and so damaging that it’s worth picking out for special attention. Any mention that the teacher will pay less tax should be taken as proof of non-compliance. An offer to pay part of the teacher’s pay as a loan is particularly damning, but whatever special, secret accounting trick is being sold we can promise that it doesn’t work and will cost the teacher, and possibly you, a lot of money in the long term.

The teacher’s employment status is not clear

A compliant umbrella company offers employment. The teacher should be employed, and have access to all the rights that UK law gives employees. No exceptions, no excuses; if the teacher’s employment status is in any way in doubt, the umbrella company is not compliant.

They’re not FCSA Accredited

FCSA Accreditation demonstrates that there’s an ongoing commitment to doing things properly at the heart of the umbrella company’s culture. There may be some very good, reliable and compliant companies who have not yet achieved accreditation, but why take the risk? We recommend that recruiters only work with FCSA Accredited Members. 

More generally, the best umbrella companies will see proving their compliance as a minimum standard, and just a small part of what they offer.

If you have questions about tax avoidance or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.

Umbrella companies


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