The Government has published its response to the Call for Evidence consultation into the Umbrella Market that closed over a year ago – while also opening a new consultation into tackling non-compliance.
The response from the recruitment industry has been mixed – with some welcoming developments while other still believe the Government is dragging its heels.
“Regulation of umbrella companies is long overdue,” said Neil Carberry, REC Chief Executive, addressing the publication of consultation ‘Tackling non-compliance in the umbrella company market’: This announcement represents progress that is crucial to a sustainable temporary work market.” Carberry makes the point that unlike recruitment firms, umbrellas currently operate without a specific regulatory framework, leaving workers and employment businesses at risk of non-compliance on worker rights and tax. “While there are voluntary standards and audits in place for these firms, a strong legislative base is necessary,” he says. “This consultation is a step towards that.”
Julia Kermode, CEO of umbrella company compliance specialist PayePass, describes the government’s response as a mixed bag: “There are some valid proposals,” she says, “like ensuring proper due diligence is carried out on umbrella companies and holding the supply chain accountable if they fail to do so. But at the same time, the government is putting forward ideas which need real work and threaten how the wider recruitment sector operates.
“It’s taken a year and a half for the government to publish this response, which doesn’t actually resolve any immediate concerns,” she adds. “There are plenty of recommendations being put forward, but very little action. The reality is, the longer that the government sits on its hands, the more problems it creates.
“HMRC themselves admit that the majority of disguised remuneration tax avoidance schemes operate within the contracting sector,” says Kermode. “They masquerade as compliant umbrellas, posing a huge personal financial risk to over 500,000 people working in this way – some of whom have no choice about their umbrella. But not only are innocent workers affected, the Treasury also misses out on billions in tax due to these immoral schemes.”
Crawford Temple, CEO and founder of Professional Passport, the UK’s largest independent assessor of payment intermediary compliance commented: “The consultation that the Government has released in tandem with today’s response is more encouraging and positive and suggests that the Government is keen to adopt a new approach and intends to raise the bar across the industry. I applaud that stance. It is therefore vital that the Government, accreditation bodies, clients and recruiters now work together. There is a lot of work to be done, specifically in the areas around due diligence and debt transfer as one example, and we would urge HMRC to take us up on our suggestion to form a working group of experts so that together the industry can move forward for the better and benefit of our sector.”
“There are no surprises in today’s response,” said Dave Chaplin, CEO of ContractorCalculator, “and subsequent consultation by the Government on umbrellas and it is good to hear that finally, the Government is stepping in to clean up an industry that harbours a murky side, giving the whole industry a bad name.
Chaplin believes HMRC has inadvertently created a breeding ground for non-compliance where unscrupulous operators can enter the supply chain and siphon off monies that should be going to either HMRC or the worker.
“The lack of visible enforcement by the authorities, combined with HMRC chasing the workers for the lost money many years later, only encourages the most egregious schemes more. It doesn’t matter how big HMRC makes the stick if they never whack anyone with it,” he says. “The consultation document suggests that a behavioural effect to policing will be used, whereby clients and agencies in the supply chain will be saddled with liability if the umbrella fails to process payments correctly. That’s a sensible idea.”
