REC responds to tackling non-compliance in the umbrella company market call for evidence 

Following the call for evidence on the umbrella company market last year, the Treasury launched a further consultation on proposals to regulate umbrella companies. The aim of the consultation is to improve outcome for workers, protect taxpayers from loss through tax non-compliance and to support a level playing field within the market.​

The consultation focuses on 3 key areas which they believe will achieve this:​

1. Defining an umbrella company – 2 options were provided. One which was a very prescriptive definition accompanied by 4 acceptable models of engagement. The other less prescriptive and involved a 3 stage test.​
2. Introducing regulations – 2 options were suggested. One focused on three “key areas“ of ensuring a worker received their pay regardless of whether the umbrella company had received it, rules around offering additional services and the key information document. The second was a far more prescriptive and comprehensive set of regulations but no further details on what this would encompass were included.​
3. Enforcement options –looked at expanding the remit of The Employment Agency Standards Inspectorate (EAS).   In terms of tax non-compliance specifically, options included were mandating due diligence for Employment businesses (EB), a transfer of umbrella company tax debt being passed to the EB or end user client and finally the EB becoming the deemed employer for the purposes of PAYE and national insurance contributions.

In our response, we argued that any definition should be drafted broadly to capture the ever-changing business activities of umbrella companies and minimise the risk of them falling outside the scope of regulation. That’s why we once again took the opportunity to encourage government to use the tried and tested definition of a temporary work agency which can be found in the Agency Workers Regulations 2010. In addition to the three areas proposed, we argued that regulations should encompass the full range of umbrella company activity including for example, advertisements, transparency of fees and terms to be agreed with workers etc. ​

We also put forward the case for the Employment Agencies Standards Inspectorate (EASI) to enforce the regulations but said they must be given adequate resources to do so. In relation to tax non-compliance, we argued that responsibility for this should rest firmly with HMRC who have the necessary enforcement powers and tax expertise. We made it very clear that our members should not shoulder the burden of regulation or liability of umbrella company activity and tax non-compliance.​

You can read our full response here.