In addition to HMRC’s other actions, a call for evidence has been issued jointly by BEIS, HM Treasury and HMRC regarding umbrella companies. The document indicates concerns regarding regulatory and tax non-compliance in the sector, as well as signalling a clear intent to legislate, however to get it right information and evidence is sought on current arrangements.
The call for evidence recognises the role that umbrella companies have in the marketplace, and the useful purpose served by compliant businesses. However, it also highlights areas of key concern relating to tax, referring specifically to tax evasion via mini umbrellas, tax avoidance through disguised remuneration as well as key areas for non-compliance. There is express reference to concerns relating to, and therefore the need for information on, the use of the Employment Allowance to reduce national insurance contributions, flat rate VAT schemes, and the growth of the “purported joint employment model”. The call for evidence is not just about tax, it also focusses on perceptions on non-compliance and worker exploitation, suggesting an intention for greater regulation relating to non-payment of wages, payroll skimming (skimming money from payslips or inflating deductions), and the non payment of holiday pay.
The call for evidence asks key questions surrounding the use of umbrella companies in recruitment supply chains, including the sectors, scale, perceived advantages and disadvantages, how key information documents re being used, as well as due diligence steps taken. These are questions for different participants in the supply chain, and examples are sought for tax non-compliance.
Theresa Mimnagh, Lawspeed said “At this stage this is just a call for evidence but it should be seen as a clear statement of intent, on the part of three government departments, that increased regulation is on its way, with a recognition of the government’s view that primary legislation is required, something that the government is already committed to do in order to bring forward its Single Enforcement Body. Agencies can have liability as a result of working with non -compliant umbrella companies, whether in the form of tribunal claims, contractual liability to hirers or RPOs, or in respect of taxation under the Agency Tax Rules, MSC legislation, or Criminal Finances Act.
For many businesses, especially since the Off Payroll rules came into play, umbrella companies have offered a vital alternative option, but that should not be at the risk of liability. There are steps that agencies can take to minimise risk, with strong contracts and due diligence key. Start 2022 in a strong position”
The call for evidence can be found here, with responses sought by 22nd February 2022.
About the author
Theresa Mimnagh is Associate Director at the recruitment and employment law specialists Lawspeed. Lawspeed group corporate clients benefit from immediate up to date advice on staff engagement and related regulation; employment status; client, IR35, PAYE and umbrella contract templates; contract review/negotiation; self-employment and CIS contract templates; trade membership and government representation; accreditation services and a state of the art digital contract management platform.