Contractors' Questions: Are new AML regulations a threat to umbrellas?

Contractor’s Question: This ContractorUK article seems to suggest that the updated AML regulations are a genuine threat to some umbrella companies. This follow-up Q&A article – also by an umbrella company boss, suggests they are not due to an exception in the rules. Can an independent party please put the issue beyond doubt?

Expert’s Answer: There has indeed been some suggestion that umbrella companies are caught by Anti-Money Laundering regulations and that they should register with one of 22 supervisory bodies recognised by the government. 

Our interpretation of the regulations suggests that this is not necessary in practice, as government guidance sets out that umbrellas are exempt. For your own peace of mind, please refer to the section ‘Payroll businesses that do not need to register’ in the government guidance here. 

However, it’s not clear from your question as to which party you are, but if you are a recruitment agency and are concerned that your PSL Umbrella Companies might present a money-laundering risk, then we recommend you bear in mind a FCSA Accredited Member for your PSL, because:

• We only allow umbrellas to pay into UK bank accounts
• We require accredited members to undertake proper ID checks of their umbrella employees
• We do not allow payments to umbrella employees except as employment income
• We require all payments made to umbrella employees to be subject to PAYE/NIC
• We require all tax and NICs to be paid over to HMRC

For your information, our annual accreditation testing checks that the umbrella is a genuine business, and not some sort of ‘sham’ arrangement without real umbrella employees. It also checks to ensure all the above requirements are being implemented properly.  

The expert was Julia Kermode, chief executive of the Freelancer and Contractor Services Association.