The government has issued a new consultation “tackling non-compliance in the umbrella company market” in a bid to address non-compliance within the umbrella market.
Non-compliance in the umbrella market has been rife for many years, with umbrella companies often offering contractors a more favourable take-home package, typically offering high levels of take-home pay, often over 80% which is impossible to achieve even at the lowest rate of income. Some non-compliant umbrellas may also try to disguise salary payments as something else, such as an offshore loan, in a bid to avoid paying taxes.
An easy one to spot, is where the umbrella company says they are HMRC approved – this is a false claim as the HMRC doesn’t approve, certify or accredit schemes – so any umbrella company that claims they are HMRC approved is non-compliant.
Another tell-tale sign is when an umbrella company promises non-taxable income (over an above the tax-free personal allowance of £12,570) and is likely using creative ways to make payments to its workers, and as such is avoiding the taxman.
Stamping out non-compliance
This latest consultation seeks to stamp out non-compliance by:
Enforcing supply chain compliance through mandated due diligence for either employment businesses or end clients. It is unclear at what point in the supply chain the responsibility for the due diligence would lie or what it would involve; however, the recent IR35/Off-Payroll legislation may give an indication of HMRC's intentions, should this be the preferred option.
Introduce legislation to allow for a transfer of debt, whereby another business (employment business or end client) in the supply chain could become liable for any uncollected income tax and NICs. This option provides the required encouragement for employment businesses and end clients to secure the supply chain and, perhaps more importantly, finally allows for the removal of providers that currently put contractors at risk through the proliferation of tax avoidance schemes. Where the supply chain is supported by a fully compliant umbrella company, the employment business or client would have no risk under any proposed debt transfer rules since tax and NI are paid in accordance with the law.
Make the employment business (that supplies the worker) the employer for tax purposes. Further detail is required on this point, however, this seems a disproportional step when working with an Umbrella company that already fully complies with tax legislation, and could lead to employment business and end clients choosing to not use umbrella companies altogether.
This consultation will be open until 29th August 2023, and following the conclusion of the consultation, the government will consider the responses in full and will publish a summary of responses.
At Gerrard White, we agree that additional compliance to secure the supply chain can only be a good thing to help protect contractors, reduce non-compliance, and to level the playing field for compliant umbrella companies.
We only work with FCSA (Freelancer and Contractor Services Association) accredited umbrella companies to ensure the supply chain is already fully compliant and to protect the supply chain. For umbrella companies to become FCSA members, they must demonstrate compliance with the FCSA’s Codes of Compliance and provide documentary evidence supporting this to independent FCSA-approved assessors. These standards must be demonstrated year after year for umbrella companies to retain their FCSA accreditation, otherwise there is a risk of having accreditation revoked.
If you have any questions about this consultation, please do not hesitate to reach out to our compliance team at Gerrard White – we would be happy to help!
As a specialist in IR35 compliance and an expert in handling UK contracting work, we would love to show you how our contingent workforce solutions can help mitigate risks or manage your contractor community, email us or call us 01892 553355.