Umbrella Company Problems

JSA enters voluntary arrangement owing £11.3 million

The well known umbrella company JSA Services Limited entered into voluntary arrangements with creditors in December 2009. Among its total debts of £11.3million was £10.6million owed to HMRC, including for PAYE and National Insurance contributions. Debts of this size usually only arise if there are fundamental flaws in computation and status, and could relate to incorrect payment of expenses.

For many years, JSA Services, which is part of the JSA Group, has been marketed as a compliant umbrella solution. The JSA website continues to describe JSA’s umbrella service as “tax-compliant”, including accreditation stamps of approval from a number of well-known parties: APSCO, the PCG, Professional Passport and Shout 99. JSA is also understood to be a founder member of the Service Providers Association, founded last year to act as a trade body for compliant umbrella service providers. This must raise some serious questions about the value of so called accreditation and claimed compliance.

Albany fails to pay contractors and may be exposed to the MSC legislation

Albany, which comprises an umbrella company and what may turn out to be a Managed Service Company solution, announced in January 2010 that it was ‘restructuring’ after its financial backing was withdrawn. A number of recruitment agencies have reported that they have been left in a position where they have been invoiced by Albany in respect of contractors provided to hirers, but payments for previous periods have not been made by Albany to the contractors. One conclusion is that payments made are instead funding Albany’s financial deficit. Frustratingly, reports also suggest that Albany has gone incommunicado – refusing to answer phone calls and emails from agency and contractor alike.

Predictably, the unpaid contractors are extremely upset about not receiving payment for the services they have provided to the hirer and their first port of call is to complain to the agency. The agency may also experience a backlash from the hirer.

Whatever the position, Albany is in breach of its obligations to the contractor. Furthermore the MSC legislation may be triggered since Albany operates a scheme in which the contractor is paid as self employed and acts as a director of the service company. Agencies that have recommended Albany may therefore be exposed to transfer of debt under the MSC legislation.

It is not known why Albany is in this financial position and whether the funding was withdrawn because of tax debts. However there is a serious risk that its contractors may not get paid at all, leaving the agencies with a dilemma.

As with JSA (see above), Albany’s marketing continues to emphasise itself as “fully compliant”, and until recently it was a member of APSCO. Indeed its website continues to sport an APSCO accreditation stamp of approval and the statement: “We know the most important thing to your contractors is being paid accurately and on time.” Surprisingly they even continue to market an insurance product which promises to continue to pay the contractor “in the event of your agency or client company going bust”! Unfortunately, these latest developments demonstrate that assurances of compliance from the service provider as well as third parties can be grossly misleading

Sunday Solutions winds up, leaving contractors unpaid

A third umbrella company, Sunday Wealth Management Limited (trading as Sunday Solutions), was wound up in January 2010, apparently with some debt to contractors remaining outstanding, and no doubt similar problems as with the Albany situation.

Again the reason for the collapse is not known.

Ironically Sunday Solutions’ website, which is no longer owned by Sunday Solutions, begins by stating: “Contractor umbrella companies are an HMRC compliant form of PAYE payroll”!!


Both JSA and Albany have existed for very many years. The fact that companies such as these, with such a large presence in the market place, are failing will come as a shock to the industry as a whole. The continuing bland claim that they are compliant and implication that they are sound organisations must now be seriously in question.

What is clear is that recruiters should not rely on assurances from service providers that they are compliant. All service providers give these assurances, yet as we can all now see, some are patently wrong.

In addition, certification schemes provided by third parties including trade bodies should not be seen as the automatic verification that a member or certified party is safe to deal with, and are apparently valueless given these circumstances. Trade bodies that have members that are service providers in particular have an interest in promoting those members, and should thus be treated with caution however exhaustive the trade body claims its approval process is.

Agencies should instead conduct their own checks before recommending any service provider. The Lawspeed SPA service, which is free to agencies, provides just such a service for recruiters in terms of MSC risk. This service, as with all Lawspeed services, avoids any conflicts of interest (which third party certification does not) and is backed by full professional indemnity insurance. The issue of conflict of interest is often overlooked, but is absolutely key in this serious commercial context.

3 areas of concern to consider

First a service provider may expose the agency and its directors to debt transfer under the Managed Service Company legislation, as mentioned above.

Second, what is potentially of far more immediate concern is the situation where the service provider receives funds from the agency but fails to pay the worker. Under the contract between agency and service provider it is often the case that the service provider continues to have a legal right to payment, and it may also assign that right to its financial backers who promptly demand the money from the agency. Payment cannot usually be made direct to the worker leaving the worker high and dry and rather upset and all the parties in the supply chain can be affected. A client is never impressed if its worker does not get paid.

In these circumstances it is crucial that the agency has the right terms of business in place with the service provider, so that there are steps that can be taken to halt payments. Many contracts, including terms issued by service providers themselves, fail to deal with this situation adequately.

Third, a contractor could have a negligence claim against an agency that recommends a service provider. It is crucial therefore that any referral of a service provider to a contractor, for example under a PSL, is worded to ensure that the agency excludes liability. This is the only way to avoid the inevitable complaint from an unpaid contractor turning into a formal claim and perhaps a complaint to the Department of BIS under the 2003 Agency Regulations.

Case study

In a recent case a Lawspeed agency client had two contractors with one service provider, each assignment was on a different form of contract. One form of contract was a Lawspeed contract, the other from an unknown source but believed to be the service providers own terms. In both cases the service provider had had its funding withdrawn and had assigned the right to receive payment to the funder who claimed the money for work done over a period of two months. The contractors had not been paid and were complaining to the agency which had initially steered both contractors towards the service provider in both instances.

Under the Lawspeed contract there were no less than seven provisions on which the agency could rely to withhold payment, providing the agency with leverage to overcome the problem. Under the other contract there were no provisions at all.

The moral of the story – check service providers thoroughly first – do not recommend them unless you have cleared them – do not rely on third party certification or claims of compliance even from trade bodies – make sure you have the right contract in place to protect you and your workers funds. Lawspeed agency to umbrella terms of business are specifically formulated to protect the commercial interests of the agency.

Regrettably these events will damage the service provider industry, in which there are undoubtedly organisations that do play by the rules. However these events must serve as a siren warning to everyone.

For more information on how Lawspeed can help in these areas, call us now to speak to one of our consultants – 01273 236236.

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