The implications for recruitment agencies and their candidates using umbrella companies

The long-awaited Budget 2024 was delivered by Labour Chancellor Rachel Reeve in parliament on Wednesday, 30^th October 2024. In a series of tax rises to generate £40 billion, the implications of the Budget 2024 will be felt by recruitment agencies and their candidates using umbrella companies for their payroll. We’ve summarised the key points announced in the Budget 2024 below.

Rise in Employer’s NI

The rate of Employer’s NI will increase in April 2025. Currently set at 13.8%, this will rise to 15%. The Employer’s NI threshold will also decrease and apply to workers once they earn £5,000 (was £9,100).

Recruitment agencies must consider the employer’s NI change when offering assignment rates to temporary workers after April 2025.

When a candidate is required to use an umbrella company, the employment costs (Apprenticeship Levy and Employer’s NI) are deducted from the assignment rate. With the rise in Employer’s NI, agency workers will need an inflated assignment rate to ensure they continue to take-home the same amount of pay.

With the Employer’s NI rise coming into effect in April 2025, now is the time for recruiters to revisit the assignment rates for temporary candidates using an umbrella, and to explore alternative ways to offer roles with inflated rates. Agencies that address this issue sooner rather than later could find their approach generates a competitive advantage.

Extra responsibilities for agencies and end-hirers as HMRC clamp down on dodgy umbrella companies

A compliant supply chain is critical (more so than ever before), and the government will be doing even more to stamp down on tax avoidance and recruitment agencies that make non-compliant referrals.

From 2026, recruitment agencies and end-clients will be responsible for the PAYE deductions made by umbrella companies that pay their temporary workers.

Simply put, recruitment agencies and end-hirers will face the tax liability for unpaid PAYE if a non-compliant umbrella company is processing the payroll of temporary workers. With this in mind, it’s never been so crucial for recruitment agencies to ensure they refer to compliant umbrella companies like Churchill Knight Umbrella (FCSA accredited and SafeRec certified).

The policy paper on the government’s website, entitled ‘Tackling non-compliance in the umbrella company market’, states:

“As announced at Budget on 30 October 2024, the government will therefore bring forward legislation to change who has responsibility to account for Pay As You Earn (PAYE) where an umbrella company is used in a labour supply chain to engage a worker. This will move the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client. This will take effect from April 2026.”

Rise in National Minimum Wage (NMW)

Chancellor Rachel Reeves announced upcoming increases to the national minimum wage. With increases incoming, recruitment agencies face another reason to review the assignment rates of temporary candidates –  to ensure they will receive at least the national minimum wage when using an umbrella company.

The new national wage figures are as follows:

• The national minimum wage – to rise from £11.44 to £12.21 per hour.
• The national minimum wage (workers aged 18 to 20) – to rise from £8.60 to £10.00 per hour.
• The national minimum wage (workers under 18) – to rise from £6.40 to £7.55 per hour.
• The minimum hourly rate for apprentices – to rise from £6.40 to £7.55 per hour.

Corporation Tax

The rate of Corporation Tax (paid by businesses with taxable profits over £250,000) is set to remain at 25% until the next election. As one of the few taxes that has not been increased in the Budget 2024, this is at least some positive news for business owners.

Employment Allowance

The Employment Allowance is a government grant that allows businesses to reduce the amount of Employer’s NI they pay up to £5,000. The Chancellor announced in the Budget 2024 this will rise to £10,500 to “protect small businesses” – from April 2025.

Established recruitment agencies are unlikely to notice any real benefit from the change to the Employment Allowance. However, it has been used as method of unethically processing the payroll of temporary workers by mini umbrella companies (non-compliant tax avoidance schemes). With the Employment Allowance rising, some experts are warning that more unscrupulous payroll providers may target the supply chain, putting workers and recruitment agencies at risk.

The director at The Association of Professional Staffing Companies (APSCo), Tania Bowes, stresses this point in an article on Contractor UK:

“With the employment allowance going up alongside NICs increases, to support genuine micro and SME businesses, it is almost inevitable that some unscrupulous actors will look to take advantage of the allowance.”

We’ve included the Employment Allowance in this summary to make recruitment professionals aware that despite the government’s growing efforts to cut down on tax avoidance schemes, there is always likely to be a threat from unscrupulous providers who relentlessly target the supply chain of temporary workers. It’s essential you understand how mini umbrella companies have operated in the past, the risks of referring to them (for your agency and candidates) and how to ensure every umbrella on your agency’s PSL is fully compliant and transparent.

We’re ready to discuss the implications of the Budget 2024 on your recruitment agency and temporary candidates

To compensate for the rise in Employer’s NI and national minimum wage, umbrella companies will need to increase the minimum rate of pay they can process for temporary workers (to ensure umbrella company employees receive, at least, the national minimum wage after umbrella deductions have been applied).

Our professionals are here to support all our partnered recruitment agencies through the upcoming changes. Please call 0808 2525533 to discuss the implications of the rise in Employer’s NI and NMW and the minimum assignment rate you will need to offer umbrella candidates from April 2025. Alternatively, please send an email to agency@churchill-knight.co.uk.

What else was announced in the Budget 2024?

Here are some other announcements in the Budget 2024:

• VAT on private school fees will be introduced from January 2025.
• The Employment Allowance will rise from £5,000 to £10,000.
• Inheritance tax thresholds will be frozen for another two years until 2030.
• The non-com tax regime is set to be abolished. A new, residence-based scheme with “internationally competitive arrangements” will be introduced for temporary visitors to the UK as part of a package of changes aiming to raise £12.7 billion over five years.
• The pension credit will rise by 4.1% from around £11,400 per year to around £11,850 for a single pensioner. The Chancellor also announced a state pension triple lock, and spending on the state pension is projected to rise 4.1% in 2025-26.
• Stamp duty on second homes – The stamp duty surcharge paid on second home purchases in England and Northern Ireland will increase from 3% to 5%.
• Tax on tobacco duty to increase by 2% above inflation and 10% above inflation for hand-rolling tobacco.
• 5p cut to fuel duty on diesel and petrol (due to end in April 2025) is extended for another year.
• Air passenger duty on private jets to rise by 50%.
• £11.8bn allocated to compensate victims of the infected blood scandal.
• £1.8bn set aside for wrongly prosecuted Post Office sub-postmasters.
• Extra £22.6bn for day-to-day spending on the NHS in England, and a £3.1bn boost to Budget for investment.
• £2 cap on single bus fares in England to rise to £3 from January.
• Tax on non-draught alcoholic drinks to increase by the higher RPI measure of inflation, but Tax on draught drinks cut by 1.7%.
• A flat rate on all vaping liquid will come into force from October 2026.

For a more detailed report on the announcements in the Budget 2024, please read our article: What were the key announcements in the Autumn Budget 2024?