On 6th June the Tackling Non-Compliance in the Umbrella Company Market consultation was released. The deadline for responding is Tuesday 29th August 2023. If you haven’t done so already and want to have your say, now is the time to act.
What's it all about?
As a recap, the consultation seeks to address non-compliance in the umbrella industry. Although the majority of umbrella companies operate compliantly, there are some players in the market that have damaged the trust and reputation of the industry, acting non-compliantly and in some cases, causing devastatingly consequences to individuals.
PayStream and compliant umbrella companies alike provide essential support to the temporary workforce in the UK, employing contractors and upholding full employment rights and collecting and remitting all relevant taxes and national insurance to HMRC.
Time for a refresh
Following the changes to the Off-payroll rules in 2017 for the public sector and 2021 for the private sector, whereby the responsibility for assessing IR35 status moved from the contractor to medium and large sized clients, the number of umbrella companies has increased dramatically. Unfortunately, the number of non-compliant schemes in the industry has seemingly followed that trend.
Government has recognised this shift and are now consulting on how to offer further protection to contractors, level the playing field for compliant umbrella companies in the market and protect the economy against tax losses arising from non-compliance.
The breakdown
Step one is to define an umbrella company. It may prove challenging to settle on a definition that specifically captures those companies that are known as umbrellas, but once achieved.
Step two is to implement regulations tailored to umbrella companies, perhaps initially only focusing on a few specific areas.
Step three is around considering who is best to enforce the regulation. Employment agencies and businesses are regulated by the Employment Agencies Standards Inspectorate (EAS). EAS has been suggested as an obvious solution since they have knowledge of the industry. It seems logical to us, providing they are properly trained and resourced to both educate, encourage and improve standards, and most importantly, to tackle non-compliance effectively where it arises.
Non-compliance options
Three options have been suggested to tackle non-compliance. These are 1) a due diligence requirement within the supply chain; 2) a provision to transfer unpaid income tax, NICs and potentially VAT up the supply chain where HMRC are unable to recover this from the umbrella; and 3) making the employment business (and in some instances the client) the ‘deemed employer’ for tax purposes and ultimately responsible for PAYE deductions. We’ll post another blog shortly on the pros and cons of each option.
Remember that risk only occurs with non-compliance
PayStream is a financially strong company that deducts and pays all relevant tax and national insurance to HMRC. Option two, transfer of debt, would only pose risk to the supply chain where operating with a non-compliant umbrella company.
We welcome the government consultation. Compliance has always been at the core of our business, so we are pleased to see that government is focusing on rooting out non-compliant umbrella companies. These companies put contractors at risk of unexpected tax bills and negatively impacts the industry as a whole. With non-compliant umbrella companies currently able to undercut those working within the law, we are hopeful that any upcoming changes will not only level the playing field but also result in better outcomes for contractors.
Whatever the outcome, PayStream will be on hand to support our contractors, agencies and clients throughout the consultation process, and will of course closely monitor the progress of any future proposed legislation.
