Ministers come and ministers go along with government departments. And along with their demise, we have also seen promises being broken that are having an impact on the umbrella sector. The promise of a Single Enforcement Body was quickly denounced and it has now been over two years since the original call for evidence into unethical umbrella company practices. Since then, there have been endless consultations, evidence sessions, discussion papers and forums on the issue – yet not a single meaningful enforcement measure has been implemented. Instead, the can continues to get kicked down the road as a crisis of non-compliance intensifies, staining the entire sector’s reputation.
On Budget Day we heard noises and more promises that we will learn more about how the government is planning on tackling tax avoidance in the umbrella sector and I fear that too many stakeholders are pinning their hopes on hearing more about what plans HMRC will announce to regulate our industry. The calls for the sector to be regulated are growing as a result of increased non-compliance. And HMRC has now got its back against the wall to introduce some sort of regulation.
However, I believe that regulation may take the form of regulating employees’ rights so that those workers are treated fairly. That is only right. However, don’t hold your breath when it comes to learning how HMRC will tackle tax avoidance. I don’t expect to hear too much detail on April 18th on Tax Administration and Maintenance Day when once again I anticipate that can getting kicked even further down the road as HMRC ponders and evades the steps it will take.
Of course, central to the argument is the government’s lack of enforcement. Any form of regulation may be the first step but it then has to be supported with a robust enforcement regime. With the payment intermediary market amounting to probably in excess of 1,200 companies this would be a significant investment. Adding these 1,200 to the 30,000 recruitment companies that The Employment Agencies Standards Inspectorate already regulates would not work, as they don’t currently have the resources to cover their existing marketplace.
I am not convinced that regulation is the answer but fully understand why it is called for. It is the principle of regulation and what it is perceived to deliver is what I think people are calling for. The industry wants to hold someone accountable for provider compliance in the market and protect workers from being duped into arrangements that result in future significant losses.
This is where agencies must step up. Agencies must put in place robust processes to ensure that they know they are working with a compliant provider. If they don’t, they could become liable for any debts should non-compliance become apparent. Agencies have a vital role to play in non-compliance and ignore due diligence at their peril.
The Government’s consultation into tackling tax non-compliance in the umbrella industry mooted that they may consider mandating that due diligence is conducted by the end-hirer or employment firms. Placing more onus on the market to self-police is a high-risk strategy and would, in my opinion, simply provide a road map for the non-compliant operators to navigate and dodge compliant processes at will, allowing them to thrive. The Government cannot abnegate its responsibilities by offloading due-diligence onto the supply chain. If it chooses to introduce this measure then it will become even more imperative for agencies to introduce rigorous measures to follow particularly when choosing their umbrella partners.
The government’s wilful lack of enforcement has enabled tax-avoidance and non-compliance to run rampant in the umbrella company market. Despite acknowledging its plans to tackle the issue, repeated delays and inaction have effectively allowed criminal operators to brazenly break the rules without any significant consequences.
This toothless regulatory environment has tilted the playing field drastically, punishing lawful umbrella firms while shadier rivals gain an unfair advantage by skirting tax obligations. The sheer scale is staggering. It must stop but I fear that the industry will not get the reassurance it needs on Tax and Administration Day when it comes to tackling tax avoidance. I hope that I am proved wrong and that a clear road is mapped out to help the industry better navigate the challenges it is facing right now.
