Regulation of the umbrella company market is imminent to crack down on tax avoidance and all forms of non-compliance. Recruitment firms will become legally responsible for calculating the correct amount of income tax and National Insurance contributions of the contract workers they supply, in place of the umbrella companies that are deemed to employ the workers.

Recruitment businesses are scrambling to make sure they have the systems in place to manage this legal shift, which is expected to tighten due diligence and monitoring practices regarding engaging umbrella companies to eradicate fraudulent operators.

These businesses need to ensure that their umbrella company partners are fully compliant with all tax and employment laws, but in a market that has long been plagued by a murky minority, risks remain even after a thorough due diligence process.

This is where the Payroll Compliance Authority (PCA) can help. As a not-for-profit accreditor of umbrella companies, we have a unique audit model and ethical approach that makes it easy to identify compliant providers and eliminate risk.

Triple-audit assurance

Audit one

When the PCA launched in 2023 to provide a benchmark by which to identify compliant payroll companies, we set in place a rigorous initial audit process that applicants for membership must undergo. Undertaken by global accountancy firms PwC and BDO, it forensically examines the payroll company's organisational structure, all internal processes, administrative and financial procedures to demonstrate that they comply with current UK tax and employment legislation.

This partnership gives both the PCA and our members the assurance that our accreditation is meticulous and that our trademarked green tick can be trusted. The audit process typically takes three months, comprising a minimum of 150 elements and includes a review of all commercial agreements, employment contracts, Key Information Documents and all other relevant documentation. More information on the audit process is available here.

Audit two

Once a member, the initial accreditation is just the first step. To remain a PCA member, repeat checks are carried out in the form of a monthly audit undertaken independently by BDO or PwC. During this process, the auditors will require direct access to the umbrella company systems in order to carry out a random sample check of payslips and ensure that correct PAYE and VAT calculations are being made. As part of this process, the auditors will also check that PAYE and VAT payments are made at the required times, ensuring that there is no significant accrual of unpaid taxes.

This regular mini-audit means that compliance remains front of mind for any PCA accredited member.

Audit three

In addition to regular checks throughout the year, each year members must undergo a more detailed repeat audit to ensure that the payroll supplier is still complying with all legal requirements to remain a PCA member.

If a member fails to pass any of these three audits, their membership will be reviewed and, if appropriate, revoked. A fair appeals process is in place, during which an independent panel will review the case. If the panel reaches the same conclusion, the organisation will cease to be a PCA member.

This rigorous, triple-audit approach leaves no margin for fraudulent activity to enter the payroll process.

No commercial gains to compromise integrity

Setting up as a not-for-profit organisation means that the PCA's overriding purpose is to provide a service to our members and protect workers, not to make a profit.

The PCA does not face commercial conflicts or financial detriment when investigating or ejecting a member for non-compliance.

Any surplus funds after running costs have been covered, including appropriate renumeration, are reinvested into the PCA for the benefit of our members and to enhance and develop our service. This purpose is stated in our Articles of Association and underpins our approach to everything we do.

Our Board of Directors are not involved with any payroll companies and remain independent, motivated only by a desire to offer protection to recruitment organisations and workers put at risk by unscrupulous umbrella companies, and to provide the opportunity for legitimate operators to demonstrate their compliance credentials.

Double legal assurance

The PCA's legal partners are a crucial component of our offering. They provide additional levels of assurance to support umbrella companies and recruitment agencies to demonstrate and ensure compliance, respectively.

The multinational law firm Fieldfisher LLP worked with the PCA to develop our legal framework as a not-for-profit organisation, and to devise the rules that we are governed by. This is significant because it gives our organisation a robust legal foundation to work with and protects both our members and the PCA. This is because we have a legally binding framework through which we accredit and, where necessary, police or remove members, as well as to carry out appeals procedures with an independent panel, among other processes.

Furthermore, through an additional legal partnership with a KC barrister, the PCA is able to offer its members comprehensive legal due diligence and audit, alongside its forensic audit of financial compliance. This legal due diligence is carried out as part of audit one and three, outlined above.

The PCA's partner organisations are also able to provide support for members, or prospective members, on various matters, including in reviewing or drafting legal documents.

Trusted partners

Recruitment agencies control with which umbrella companies they choose to engage. With legislation, these employment businesses will be focused on preventing illegitimate operators from joining their supply chain.

Now is the opportunity for umbrella companies to reinforce their commitment to compliance in a verifiable way. Actions speak louder than words and umbrella companies can actively demonstrate their compliance credentials by agreeing to a thorough and transparent audit to achieve membership of a respected accreditation organisation such as the PCA. Ww provide unequivocal third-party assurance of an umbrella company's legitimacy and put integrity before profit.

If you would like any further information or have any questions about PCA membership or the audit process, please contact Paul Newsham at paul@payrollcomplianceauthority.co.uk