HM Treasury has launched a new consultation which considers policy options to regulate and tackle non-compliance in the umbrella company market, both from an employment rights and tax perspective. This follows a previous call for evidence on the umbrella company market which closed in February 2022 and which aimed to clarify the UK government’s understanding of the role that umbrella companies play in the temporary labour market and ‘behaviours in the market that were causing concern’.
This new consultation focuses on three principal areas:
employment rights: tightening up the ways individuals are engaged and paid, including issues around withholding pay and holiday pay;
tackling tax non-compliance in the temporary labour market: to encourage greater due diligence when businesses decide to outsource their employment tax responsibilities – this could also, for example, include deeming the agency to be the employer for tax purposes; and
targeted options to address tax non-compliance: including changes to the employment allowance and VAT flat-rate scheme both of which are used by mini-umbrella companies.
The review was welcomed by employment status specialist and chair of the Independent Arbitration Panel for the FCSA, Rebecca Seeley Harris. 'The government received over 400 responses to the call for evidence in 2022,' she noted. 'These responses came from every part of the labour supply chain. As a result of that, the government has decided to look at the issues holistically, this can only be a good thing. Corporates should know who is in their labour supply chain and every part of it should be transparent.
'Having promised to create a Single Enforcement Body (SEB), it now looks like the government’s preferred overseer of operations would be the Employment Agencies Standards inspectorate (EAS). There’s no surprise there, but they haven’t ruled out setting up the SEB at a later date,' Seeley Harris said.
‘From what I have read, this is a very comprehensive consultation covering both employment rights and tax,’ she added. ‘It is going to take time to fully implement though because there will be a two-step process. Firstly the umbrella company has to be defined in primary legislation and then the specific regulations will need to be consulted on after that before the secondary legislation is brought forward. So that will take some time but, at least the process has started.’
Susan Ball, employment tax partner at RSM UK, said: ‘The issue of tax non-compliance among umbrella companies has long been on HMRC’s radar, so it’s surprising it’s taken so long to reach this point. Now that a consultation has been launched, we could see changes implemented as soon as April 2024. We’d urge employers engaging off-payroll workers, recruiters, umbrella companies and contractors to respond to this open consultation before the deadline of 29 August, and be aware of what it could mean for them.
‘It’s a lengthy and important document posing some big questions, including defining umbrella companies, transferring PAYE debts, moving responsibility for operating PAYE and mandating supplier due diligence. This could include checks on all taxes – including corporate tax, VAT and PAYE – by all parties who are using umbrella companies in their labour supply chain.’
‘This also feels like another missed opportunity to align tax and employment legal rights and definitions, which would make it simpler for organisations to comply’, Ball added.
HM Treasury has launched a new consultation which considers policy options to regulate and tackle non-compliance in the umbrella company market, both from an employment rights and tax perspective. This follows a previous call for evidence on the umbrella company market which closed in February 2022 and which aimed to clarify the UK government’s understanding of the role that umbrella companies play in the temporary labour market and ‘behaviours in the market that were causing concern’.
This new consultation focuses on three principal areas:
employment rights: tightening up the ways individuals are engaged and paid, including issues around withholding pay and holiday pay;
tackling tax non-compliance in the temporary labour market: to encourage greater due diligence when businesses decide to outsource their employment tax responsibilities – this could also, for example, include deeming the agency to be the employer for tax purposes; and
targeted options to address tax non-compliance: including changes to the employment allowance and VAT flat-rate scheme both of which are used by mini-umbrella companies.
The review was welcomed by employment status specialist and chair of the Independent Arbitration Panel for the FCSA, Rebecca Seeley Harris. 'The government received over 400 responses to the call for evidence in 2022,' she noted. 'These responses came from every part of the labour supply chain. As a result of that, the government has decided to look at the issues holistically, this can only be a good thing. Corporates should know who is in their labour supply chain and every part of it should be transparent.
'Having promised to create a Single Enforcement Body (SEB), it now looks like the government’s preferred overseer of operations would be the Employment Agencies Standards inspectorate (EAS). There’s no surprise there, but they haven’t ruled out setting up the SEB at a later date,' Seeley Harris said.
‘From what I have read, this is a very comprehensive consultation covering both employment rights and tax,’ she added. ‘It is going to take time to fully implement though because there will be a two-step process. Firstly the umbrella company has to be defined in primary legislation and then the specific regulations will need to be consulted on after that before the secondary legislation is brought forward. So that will take some time but, at least the process has started.’
Susan Ball, employment tax partner at RSM UK, said: ‘The issue of tax non-compliance among umbrella companies has long been on HMRC’s radar, so it’s surprising it’s taken so long to reach this point. Now that a consultation has been launched, we could see changes implemented as soon as April 2024. We’d urge employers engaging off-payroll workers, recruiters, umbrella companies and contractors to respond to this open consultation before the deadline of 29 August, and be aware of what it could mean for them.
‘It’s a lengthy and important document posing some big questions, including defining umbrella companies, transferring PAYE debts, moving responsibility for operating PAYE and mandating supplier due diligence. This could include checks on all taxes – including corporate tax, VAT and PAYE – by all parties who are using umbrella companies in their labour supply chain.’
‘This also feels like another missed opportunity to align tax and employment legal rights and definitions, which would make it simpler for organisations to comply’, Ball added.
