UK cracks down on umbrella companies

Treasury Consultation on Intermediaries Hiring Temporary Workers

According to new government proposals, UK employers may be held responsible for the tax avoidance of so-called umbrella firms that act increasingly as intermediaries when hiring temporary workers.

The HM Treasury began consultation on Tuesday to find ways of curbing widespread tax avoidance by companies and their abuse of employment rights.

The document outlined three options. First, it would require recruiters and their clients to perform due diligence on umbrella firms. If they failed to do so, there would be penalties. The second legislation allows HM Revenue & Customs (HMRC) to collect unpaid taxes from other businesses in the labour supply chains.

Third, recruiters would be treated as employers for tax purposes, and held responsible for irregularities on payroll even if an umbrella company was used to carry out the function.

Treasury wants umbrella companies to be defined more precisely to avoid them evading new rules or developing new methods.

Over 500,000 people, including nurses, teachers, care workers, and consultants in the UK now work for umbrella companies.

Some white-collar workers do not wish to be sole traders. Some temps are steered to umbrellas by their employers or recruitment agencies, as they do not wish to incur the administrative costs of hiring them directly.

Legitimate operators have been calling for the government to crack down on scams, which have led workers to receive unexpected bills from HMRC. Other abuses include umbrellas skimming wages, denying holidays pay or offering recruiters a kickback to be placed on preferred suppliers list.

The Treasury announcement did not ban umbrella companies, as demanded by unions. However, industry bodies welcomed this consultation because it was long overdue. They said that the plans will need to be developed in detail before they can become reality and will achieve little if Ministers do not allocate more resources to enforce new and existing labour laws.

Neil Carberry, the head of the Recruitment & Employment Confederation said that umbrella companies are “prone to changing quickly”. . . So any rule will require a strong enforcement structure. It’s not possible to fudge this by transferring responsibility elsewhere in the supply chain.

He said that although agencies believed regulation was necessary, they were worried about the risk of “being held liable for failures at another company they had no reasonable controls over”.

Kevin Barrow of Osborne Clarke said that HMRC could collect unpaid taxes from recruiters and their clients if they were combined with a license regime and stricter enforcement. He added, however, that companies who take their obligations seriously are at a disadvantage against bad actors when they outsource compliance.

Julia Kermode is the chief executive officer of Payepass – a provider of software for payroll compliance – and she said that consultations did not address any immediate issues.

She added, “It took a year-and-a-half for the government’s response to be published.” “The longer the government waits, the more issues it will create.”

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