Non-compliance in the umbrella company market is increasing more than ever. With over 500 umbrella companies operating in the UK, spotting a non-compliant umbrella company is hard. To tackle this issue of non-compliance in the umbrella company market, the government has sought proposals from the stakeholders to define umbrella companies and lay down rules to regulate the umbrella company market.
The latest umbrella company consultation gives us an insight into what the government intends to do, and most importantly, how?
It is estimated that over 500,000 temporary workers are working through umbrella companies. The number of temporary workers is quite high and is increasing day by day. This makes it all the more necessary for the government to regulate the umbrella company market. Fraudulent and tax-avoiding umbrella companies have badly damaged the reputation of the umbrella company market. So much so that, it has made life difficult for the compliant ones.
The government has certainly taken cognizance of this matter and has invited proposals from stakeholders to tackle the umbrella company's non-compliance issue.
The deadline to submit the proposal is August 29 and the responses can be emailed to: [email protected].
However, people from within the industry are of the opinion that this consultation has created more problems than solutions. The consultation is a good move, a step in the right direction, but is it too little too late?
The question is, had this consultation come out a year or two earlier, things could have been different. Would it have been more effective? – Probably yes!
The umbrella company consultation has been laid down with three main objectives:
From what we’ve read so far, the government has decided to put the onus of due diligence on the recruitment agencies or the end clients. This means they’ll have to ensure that they are engaging with a fully compliant umbrella company that is not involved in any type of tax avoidance.
If the government finds any irregularities in the operations of the umbrella company engaged by the recruitment agency and finds them involved in any sort of tax avoidance, the agency would be penalised. It seems that the government intends to hold recruitment agencies liable for the unpaid taxes if the umbrella company engaged by them is involved in tax avoidance. This has had the recruitment agencies worried, and rightly so.
The recruitment agency’s expertise is in employing a worker and they may not have the skill set required to handle payroll and tax-related matters because that is the job of an umbrella company. This might force the recruitment agency to hire additional staff with the required skill set to deal with tax and payroll related matters. This would mean additional financial burden and an add up to their operational costs. Hence, we believe this might not be a good move by the government to hold an agency fully accountable for an umbrella company’s actions.
The government needs to strike a balance between the two. They need to ensure that the recruitment agency does proper due diligence before appointing an umbrella company, and at the same time not hold them fully accountable. A penalty could be levied on the agency but to a limited extent.
The implementation should be done after careful consideration, keeping in mind the best interests of all the parties involved. A proper and robust framework needs to be laid down.
This does however looks like a step in the right direction as an umbrella company consultation was long-awaited. It will be interesting to see what further steps are taken by the government to tackle the troubling non-compliance issue in the umbrella company market.
You can read and download HMRC's latest umbrella company consultation by clicking on this link.
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. You can also write us an email at [email protected].