On 30th November 2021, the Government announced an open consultation on umbrella companies concerning tax avoidance and breach of workers’ rights. This open consultation requests input from stakeholders regarding the utility of umbrella companies in the labour market, specifically employment and tax rights.
In this article, we summarise this consultation; the Call for Evidence for umbrella companies.
What is Call for Evidence?
The Call for evidence is a new consultation document issued by the government that includes an outline of the umbrella company marketplace and sets out the concerns raised by stakeholders on the current state of the umbrella industry.
The call for evidence invites multiple stakeholders' views on a broad range of questions, including contractors, temporary workers, freelancers, end hirers, and staffing representatives. It also provides information about the government’s action already taken to tackle non-compliance and improve workers’ protection and seeks views on the government understanding of the behaviours in the market that are causing concern.
The HM Treasury have a Call for Evidence survey on the umbrella company market. Click here to take the survey.
What is the objective of the Government’s open consultation investigating umbrella companies?
There has been a significant rise in the use of umbrella company structures after the introduction of the IR35 legislation. The ongoing coronavirus pandemic, demanding flexible working conditions and less administrative work has also greatly contributed to the rise.
While most of these are legitimate and compliant with HMRC’s rules and regulations, the Government remains concerned that some umbrella service providers continue to use unethical arrangements to facilitate tax avoidance, which has tarnished the industry’s reputation.
The government agrees that umbrella companies may support a more flexible and resilient labour market by performing employment services for employment businesses and other agencies seeking temporary workers. However, the government indicates the rationale for this call for evidence is the tax and regulatory system changes due to the increased complexity in the labour market and umbrella company model.
The government also recognises the concerns raised by the stakeholders about the abuse of the umbrella company model with poor market practices, workers’ exploitation and tax avoidance schemes that remain a threat to workers and taxpayers.
The government is specifically concerned about non-compliance with the employment law failing to provide employment rights such as Holiday Pay and poor market practices such as lack of transparency over pay rates, fees and charges.
The government also indicates tax non-compliance within this sector, contributing to the broader tax gap. This includes tax evasion through mini umbrella companies and tax avoidance through disguised remuneration schemes that pay employees using loans instead of ordinary income to avoid income and National Insurance Contributions. Mini Umbrella Company (MUC) fraud has been a recent threat for contractors and freelances whereby larger umbrella companies’ workforce splits into multiple smaller companies to benefit from the tax relief fraudulently.
The government is also interested to hear views about reasons for the use of joint-employ models where an umbrella company jointly employ contracts with an employment business.
Along with the introduction of the Key Information Document (KID) in April 2020, the government has also set up its intention to introduce the legislation that will bring umbrella companies within the same legal framework as employment agencies, namely the Employment Agencies Act 1973 and the associated conduct of Employment Business Regulations 2003, to counter the use of non-compliant umbrella companies.
Further, the government added that the evidence gathered through the Call for Evidence will assist the government with the potential options for the ongoing policy development to protect workers better and ensure that future regulations are based on the most up-to-date market practices.
The government, therefore, wants to ensure that it has a detailed and up to date understanding of the market by seeking views from stakeholders about the use of umbrella company market, its benefits and practices.
The government has stated that this Call for Evidence is intended to complement the "government's commitment to bring umbrella companies scope for labour market enforcement".
How can an umbrella employee contribute towards the consultation investigating Umbrella companies, and why should they?
The Call for Evidence is an information-gathering document for the government to understand the umbrella company market for introducing the legal regulation within this sector. The responses gathered through this document will help the government identify the opportunities for improvement and spot threats regarding non-compliances within this sector.
So, if you are working through an umbrella company, it's the best opportunity for you to share your thoughts on all the positive and negative aspects of an umbrella company. The Call for Evidence contains 38 questions specifically designed for contractors, temporary workers, freelancers, and representatives of a staffing agency and end hirers. If you are one of these, you can make a significant difference by answering the questions asked in the consultation document.
The more people participating in this consultation, the higher the chances of progressive changes that will help improve the future of temporary contractors/workers rendering it difficult for non-compliant and unethical providers to thrive in the industry.
So please spare a few minutes and participate in this consultation if you're a stakeholder within this industry. All responses can be e-mailed to [email protected] or can be posted to:
Umbrella Company Call for Evidence, Personal Tax Team, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ
The Call for Evidence consultation closes at 11:45 pm on 22nd February 2022.
Disclaimer
This article is for information purposes only. We strongly recommend taking professional advice or an expert opinion before reaching any conclusion. We have a team of experts who can help you with your queries, please feel free to review them. You can also write us an email at [email protected].