The absence of independent, robust, defined regulation of umbrella companies, including Mini Umbrella Companies (MUC), has gone on long enough, and so the government’s newest consultation is a hugely significant development, says David McCormack, CEO of HIVE360.
A long-time long campaigner for the recruitment industry to work towards eradicating the malpractice and abuse of tax legislation by the umbrella company market that threatens the reputation and survival of many businesses, McCormack says the industry is now at last one step closer to regulation.
“In response to the call for evidence on the umbrella company market that closed on 22 February this year, in June the government published a consultation seeking views on proposals to regulate umbrella companies.
“The consultation is looking to stakeholders to register their views on proposals to regulate umbrella companies, which a significant number of respondents to the Call for Evidence’ consultation published in November 2021 supported.
“It also seeks views on options to tackle tax non-compliance in the umbrella company market that respondents to the call for evidence suggested is causing harm to workers, businesses and taxpayers.
“The fundamental purpose of this newest consultation, which closes on 29 August 2023, is to gather the views on plans to tackle non-compliance with both tax and employment rights by umbrella companies that were highlighted and broadly supported in the previous consultation, as the government has explained:
The purpose of this consultation is to seek views on proposals to tackle non-compliance with both tax and employment rights by umbrella companies. The government has three main objectives for the umbrella company market. These are to:
• deliver improved outcomes for workers
• to support a level playing field in the umbrella company market
• to protect taxpayers from the significant revenue losses that currently arise from non-compliance.
“Together, these will enable both people and businesses to succeed in the labour market, supporting economic growth and ensuring everybody feels its benefits,” he believes.
Call for evidence
On 30 November 2021, the government published a Call for Evidence on the umbrella company market. This has informed the government’s understanding of the role played by umbrella companies in the temporary labour market and the behaviours in the market that were causing concern. It sets out the concerns that have been raised by some stakeholders, as well as government action already taken to tackle tax non-compliance and improve protection for workers, considered issues across employment rights and tax, and how they interact with each other, and was run jointly by HM Treasury, HM Revenue and Customs and the Department for Business, Energy and Industrial Strategy (now the Department for Business and Trade).
When it closed, the Call for Evidence had had over 400 responses from industry representatives, umbrella companies, employment businesses and umbrella company employees, among others.
Sustained pressure
HMRC compliant outsourced payroll companies, including HIVE360, have long called for legislation to clamp-down on bogus umbrella payroll companies operated as tax avoidance schemes.
“Pressure for the reform and regulation of the umbrella payroll industry and its transparency across the outsourced payroll and recruitment sectors has continued to build,” he says, “notably fuelled by a number of tax avoidance and unscrupulous models of payroll that were well reported and identified as leaving temporary workers financially penalised and open to illegal activity that threatens them and the businesses they work for.
“In recent months, the drive for reform has gained further traction in the wake of evidence of growing numbers of workers being financially hit by ‘skimming’, disguised costs, and hidden agency kickbacks – all traits of bogus outsourced payroll suppliers.
“Transparency of payroll solutions is long overdue”.
“There is no statutory definition of an umbrella company, nor how one should behave. As an unregulated industry, lots of new payroll companies have emerged pretending to be umbrella companies, without fulfilling the proper obligations.”
Legal obligation
McCormack continues:
“Agencies should have to validate that their payroll and umbrella suppliers are paying workers compliantly, and that they are not party to tax avoidance. Agencies, suppliers and the payroll provider should be jointly responsible for any unpaid or avoided tax.
“Supply chain companies should be required to make clear to the worker about the rights they will lose by using the outsourced solution, and the employing company should be required to confirm the company’s location, tax residency of its directors, the total number of employees paid by the umbrella company, disclose any tax avoidance or structuring, and share a comparison of the top line pay vs take-home pay for both umbrella and PAYE for the same assignment with every worker for each assignment, unless the pay is purely a PAYE rate.
“They should also be required to disclose any incentives or ‘kickback’ from the umbrella company and why it’s being received.
“There also needs to be a clearer split between ‘contractor’ and ‘PAYE workers’. IR35 is only partially effective, and it would be easier to add a caveat to IR35 which reflects the real value of workers’ expertise with a minimum contractor hourly rate, below which they are deemed as ‘employed only’.”
HIVE360 Plus
HIVE360 has launched a new generation of protection and support for agency payroll, which challenges the traditional umbrella model and delivers more choice in the way recruiters outsource temporary workforce payrolls.
“The two alternative payrolling solutions HIVE360 PAYE Plus and HIVE360 Umbrella Plus, represent a new era for the recruitment sector,” McCormack explains. “Delivered through HIVE360 Plus, recruiters have all of the benefits of outsourcing payroll and associated employment liabilities, but not at the cost of their compliance and reputation, whilst providing a better deal for workers with additional cost saving opportunities.”
Take part
The consultation closes at 11:59pm on 29 August 2023. To take part visit: Tackling non-compliance in the umbrella company market – GOV.UK (www.gov.uk)
