Umbrella company market consultation

• On 6 June 2023 Government published a consultation titled “tackling non-compliance in the umbrella company market”. The consultation will be open until 29 August 2023
• Its purpose is to obtain views on tackling non-compliance with both tax and employment rights by umbrella companies
• Government has 3 objectives for the umbrella market;
  • Deliver improved outcomes for workers
  • Support a level playing field and
  • Protect taxpayers from the revenue losses arising from non-compliance
• Government states that an outright ban would not be a proportionate response
• In order to regulate umbrella companies, Government states it must first define them in law and the consultation supplies two options on how it may do this
  • The consultation itself describe an umbrella company as a business that “employ individuals on behalf of employment business who are then supplied to end clients”
• In order to tackle non-compliance, one suggested option is to introduce a mandatory due diligence requirement. Penalties would be applied to employment businesses or end clients that do not comply
• Another option is to give HMRC legislative power to collect an umbrella company tax debt from another business in the supply chain (such as Income Tax and National Insurance Contributions (‘NICs’)) or make another entity in the supply chain the “deemed employer”. Government believe that making employment businesses and end users liable for unpaid tax debts would make them more selective in engaging with umbrella companies
• A further option explored is to prevent umbrella companies from handling gross funds so that a party above the umbrella company makes the deduction of Income Tax and NICs and pays this to HMRC. This would stop umbrella companies treating payments to workers as non-taxable such as the “loan” avoidance arrangements
• Government also seeks views to combat reported abuse of the employment allowance (‘EA’) and VAT flat rate scheme. One option suggested by Government is to mandate a UK director to be in place for a company to be eligible for the EA

Aspire Comment

Regulating umbrella companies has been on Government’s “to do list” since forming part of the Good Work Plan in 2018 which resulted in an initial Call for Evidence in November 2021 and so, it is long overdue that the next steps are taking place.