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Non-compliance in the umbrella company market


Published: 14 Jun 2023 Update History

The government is consulting on proposals to regulate umbrella companies for employment rights and on options to tackle tax non-compliance.

HM Treasury, together with HMRC and the Department for Business & Trade, have published a consultation seeking views on policy options to tackle non-compliance in the umbrella company market.  

It invites comments on policy options to regulate umbrella companies to address employment rights abuse and to tackle tax non-compliance in the umbrella company market that are causing harm to workers, businesses, and taxpayers. It sets out the actions already taken and those under consideration to prevent future non-compliance by umbrella companies, with a view to delivering improved outcomes for workers, support a level playing field in the umbrella company market, and protect taxpayers from tax losses arising from non-compliance.  

The consultation document sets out a number of policy options under consideration.  

To address employment rights issues, the consultation proposes two approaches to defining umbrella companies for regulatory purposes. It also sets out a series of options for the regulatory framework that would be applied to umbrella companies.    

There are three strategic options for preventing tax non-compliance within the umbrella company market by changing the incentives and behaviours in the temporary labour market:  

  1. mandatory due diligence (responsibility for which might lie with the employment business or the end client); 
  2. giving HMRC the power to collect unpaid umbrella company tax debts (eg, PAYE) from another business (to encourage end clients and employment businesses to be more selective in choosing the umbrella companies that they contract with); and
  3. deem the employment business that supplies the worker to the end client to be the employer for tax purposes even when another company operates the payroll on its behalf.  

The consultation document also proposes two targeted options to address tax non-compliance, relating to the VAT flat rate scheme and employment allowance.  

Stakeholders are asked to share their views on how all these options could be further developed, as well as what their impacts could be on reducing non-compliance, on individual businesses, and on the wider labour market.   

This consultation follows the Treasury’s call for evidence, published in November 2021 and to which ICAEW, alongside approximately 400 others, responded. The call for evidence gathered information from stakeholders on the role that umbrella companies play in the labour market. A significant number of respondents supported intervention in the market to improve the treatment of workers and tax compliance. A summary of responses to the call for evidence has been published.  

If you would like to contribute to ICAEW’s response please contact Peter Bickley.  

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