Monday, February 10 2025

The independent voice for the global staffing industry

Previous article

Fraud Scheme & legislative chaos exposed – Nick Dancer, Head of Policy & Public Affairs FCSA asks, Will the Government change tact?

On the 8th January 2025, the Freelancer and Contractor Services Association (FCSA) wrote to James Murray MP, the Exchequer Secretary to the Treasury to sound the alarm on a ‘Gross Payment Fraud’ scheme operating within the public sector labour supply chain.

FCSA discovered the issue whilst scrutinising various measures in the Governments Employment Rights Bill (ERB) and, whilst commissioning employment status and tax expert, Rebecca Seeley Harris to produce an Independent Review of the Labour Supply Chain – funded by FCSA members. The ERB is currently going through the Committee Stage in Parliament and the Independent Review is due to report by April.

What is Gross Payment Fraud?

- Advertisement -

Firms claiming to be Umbrella Companies are taking advantage of various loopholes including the lack of mandated due diligence and, Chapter 10 ITEPA otherwise known as Off-payroll working (IR35). However, these companies are not really ‘Umbrellas’ because the workers were not employed, they were engaged through their own Personal Service Companies (PSCs), and this has helped to facilitate the evasion.

HMRC are already pursuing a number of cases through the courts, including ‘Ducas’ and ‘PPS Umbrella’. In the Ducas case it is alleged that £171 million in NHS workers National Insurance contributions (NICs) were syphoned off instead of being paid to HMRC. The PPS Umbrella case concerns locums which are also supplied to the NHS.

At this stage HMRC are only pursuing recovery of the employer NICs. This is because they are easier to calculate and prove but it does mean that there may be more tax losses. However, we believe that this is only the tip of the iceberg! There are other legal cases ongoing and there will likely be many more to follow.

We can say this with some confidence because the public sector labour supply chain is systemically vulnerable and in need of reform. Due to the varying degrees of devolution and number of local councils in the UK, this problem is hard to properly quantify. However, it is likely that Gross Payment Fraud is the cause of tens of billions of Pounds of lost HMRC revenues.

What is Government doing about it?

Aside from taking legal action against the allegedly non-compliant firms, the Government is proposing new regulation for the umbrella company market, as announced in the Autumn Budget 2024. The main policy is to change the entity responsible for tax from the umbrella to the recruitment business by April 2026.

However, we are unclear as to how this prevents new fraud schemes popping up in another part of the labour supply chain? Fraudulent firms masquerading as umbrellas could very easily phoenix into recruitment agencies. FCSA spends a lot of time identifying and reporting fraudulent firms to HMRC – as soon as one firm is shut down another springs up in its place. We have no desire to pass this game of ‘whack a mole’ onto the recruitment sector, it achieves nothing.

What else is Government doing?

At the same time as dealing with this fundamental change in tax, industry must also adapt to the ERB’s substantial legislative changes. We are concerned that many of the options Government have presented in their various consultations seem to overlook the fact that workers will often be employed by an umbrella company – not an agency or end hirer. The changes pose more questions than answers, such as, who would be responsible for paying Statutory Sick Pay and Guaranteeing Hours – how will any of this actually work in practice?

FCSA has responded to these Consultations, and the Business and Trade Committee’s Inquiry. We are alarmed that within seventeen sittings of the committee stage of the ERB, there has not been a single mention of Umbrella companies or temporary workers, and yet they make up circa 1.4million of the UK’s workforce. Currently, The Bill risks leaving some workers at a greater risk of exploitation and with fewer work opportunities.

On a brighter note, we are extremely pleased to see that the ERB creates the Fair Work Agency (FWA). FCSA has long campaigned for a single enforcement body (merging the existing three) and we entirely support it. However, it is clear that the FWA will not be fully operational until 2027 at the earliest. Implementing wide-ranging legislative and regulatory changes before the new regulator is properly functioning seems a bit like putting the cart before the horse.

What should Government do instead?

Whilst the Government’s aims are noble, their legislative proposals do not recognise the intricacies of the temporary labour market supply chain or Umbrella Companies. The Government needs to understand that even simple changes to roles and responsibilities can have costly knock-on impacts for every entity in the chain. It is important to look at the supply chain holistically, in order to address its issues.

We understand there will be no Impact Assessment or Consultation for the Umbrella Regulations, and the earliest industry will have sight of the detail is Autumn 2025. Leaving only six months for industry implementation is completely unachievable. FCSA is calling for a delay to April 2028 and for Government to commit to consult to ensure that the policy is fit for purpose.

Obviously, we cannot just allow this Gross Payment Fraud to continue for another two years, and there is something Government can do immediately. They should mandate that all temporary public sector workers are engaged by properly accredited Umbrellas and Recruiters, assessed against clear codes of conduct. This would not require any new legislation. In a way its really simple, the best thing Government can do to tackle this fraud is to stop giving business to non-compliant firms.

We also need to take another look at the ERB and make sure the unintended consequences of the Bill are addressed. Additionally, Government should clarify the FWA’s remit to ensure that Umbrella Companies are included, as well as legally defining the terms; “Umbrella Company” and “Inherently Temporary”. Legal clarity will aide both compliance and enforcement.

And finally, all parts of the supply chain need to be working together, the same goes for Government. Which is why we want to see a cross-Whitehall Working Group established, specifically aimed at addressing issues that exist within the labour supply chain. This group should commit to respond to the Independent Review. Working together we can; tackle fraud, increase compliance and better protect workers.

- Advertisement -
Newsdesk
Newsdesk
The Global Recruiter Newsdesk bringing you balanced journalism, accuracy, news and features for all involved in the business of recruitment from around the world
Previous article

Related Articles >

- Advertisement -
- Advertisement -
- Advertisement -