On 6th June 2023, the Government published their long-awaited response to their call for evidence in the umbrella company market. The response summarises the evidence, and contains a further consultation entitled Tackling Non-Compliance in the Umbrella Company Market which seeks views on proposals to tackle both tax avoidance and worker exploitation by umbrella companies. In this article we’ll look at the Government’s response and what it might mean for umbrella company employees.
While this response has been a long time coming, its publication represents a positive step and any move towards the regulation of umbrella companies is to be welcomed.
Findings of the call for evidence
As you’d expect, and as the Government says in its response, most respondents were in favour of regulation of umbrella companies. They have stated that they don’t intend to ban umbrella companies and they acknowledge the value umbrellas bring to the contracting industry, while expressing some concerns about how some companies operate, most notably that many umbrella company employees do not understand how their engagement works.
The response document proposes a two-step process to improve this position, which will first see primary legislation to provide a statutory definition of an umbrella company. Once this is achieved, the Government is also proposing to simplify payment arrangements in the contracting industry, with the stated intention
“to limit the ways individuals can be engaged and paid in the recruitment sector to one of four methods, one of which will be an umbrella company arrangement,” the document stated.
“The government considers that this could be beneficial to tackling pay-related detriments, such as where workers do not receive their pay or holiday pay, which are the main reported issues, as well as avoiding unnecessarily long contractual chains.”
The consultation document also sets out the government’s intentions, which include delivering improved outcomes for umbrella company workers, reducing tax losses from non-compliance and levelling the playing field for compliant umbrella companies.
Proposed measures to tackle non-compliance
The Government has asked for views from stakeholders on three main options for improving compliance among umbrella companies.
Mandatory due diligence, which would see a legal requirement for recruitment agencies or end clients to check that any umbrella they work with is fully compliant
Transfer of debt, which would see recruitment agencies or end clients being made responsible for any unpaid taxes resulting from non-compliant umbrella companies
Making the recruitment agency the “employer for tax purposes” and therefore responsible for ensuring correct operation of PAYE, even where they outsource employment to an umbrella company.
What happens next?
This consultation closes in August 2023, and the next stage will be primary legislation to define what an umbrella company is. Some commentators expect further action as early as 2024’s finance act.
For contractors who are employed by compliant umbrella companies like Orange Genie, we hope and expect there will be little practical change, as they are not affected by the issues this consultation aims to address. We will, as usual, publish further commentary as the situation develops.
If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com.