Close this search box.

Government’s slow regulatory response to umbrella company abuse

The Government has promised to provide more information on how it is planning to tackle tax avoidance in the umbrella sector on Tax and Administration Day on April 18th and with calls for the sector to be regulated growing, as a result of increased non-compliance, HMRC has now got its back against the wall to introduce some sort of regulation.

On Budget Day, we heard more promises that we would learn more about the government’s plans to tackle tax avoidance in the umbrella sector in the upcoming Tax and Administration Day planned for April 18th.  However, I fear that too many stakeholders are pinning their hopes on these announcements and will only be disappointed once again. The calls for the sector to be regulated are growing, as a result of increased non-compliance, and HMRC has now got its back against the wall to introduce some sort of regulation.

However, I believe that any regulation may take the form of regulating employees’ rights, rather than truly tackling the issue of tax avoidance. Don’t hold your breath when it comes to learning how HMRC will address this critical problem.

It has been over two years since the original call for evidence into unethical umbrella company practices. Yet, in the time since, we have seen an endless parade of consultations, evidence sessions, and discussion papers – with not a single meaningful enforcement measure implemented.  The result is a crisis of non-compliance intensifying and staining the entire sector’s reputation.

At the heart of the matter is the government’s wilful lack of enforcement. Any form of regulation may be the first step, but it must be supported by a robust enforcement regime. With the payment intermediary market amounting to over 1,200 companies, this would be a significant investment – one that the government appears unwilling to make.

I am not convinced that regulation is the answer, but I fully understand why it is called for. It is the principle of regulation and what it is perceived to deliver that people are seeking. The industry wants to hold someone accountable for provider compliance in the market and protect workers from being duped into arrangements that result in future significant losses.

This is where agencies must step up. Agencies must put in place robust processes to ensure they are working with compliant providers. If they don’t, they could become liable for any debts should non-compliance become apparent. Agencies have a vital role to play in addressing non-compliance, and they ignore due diligence at their peril.

The Government’s consultation into tackling tax non-compliance in the umbrella industry suggested that they may consider mandating that due diligence is conducted by the end-hirer or employment firms.  Placing more onus on the market to self-police is a high-risk strategy and would, in my opinion, simply provide a road map for the non-compliant operators to navigate and dodge compliant processes at will, allowing them to thrive.

The Government cannot abnegate its responsibilities by offloading due diligence onto the supply chain.  If it chooses to introduce this measure then it will become even more imperative for agencies to introduce rigorous measures to follow particularly when choosing their umbrella partners.

The government’s inaction and lack of enforcement have allowed tax avoidance and non-compliance to run rampant in the umbrella company sector. Despite acknowledging the need to address this issue, the government’s repeated delays and inaction have effectively enabled criminal operators to brazenly disregard the rules with little to no consequences.

This toothless regulatory environment has severely skewed the playing field, punishing lawful umbrella firms that comply with their obligations, while their shadier counterparts gain an unfair advantage by skirting their tax responsibilities. The scale of this problem is truly staggering and it must be stopped.

However, I fear that the industry may not receive the reassurance it desperately needs on Tax and Administration Day when it comes to the government’s plans to tackle tax avoidance. The government’s track record of broken promises and delayed action does not inspire confidence that a clear, decisive plan will be presented.

I sincerely hope that I am proven wrong and that the government finally steps up to the plate, mapping out a clear path forward to help the industry navigate these challenging times. The time for empty rhetoric and inaction has long passed. The government must take concrete, robust measures to rein in the rampant abuse that is happening within the umbrella company market.

The road ahead may be long and difficult, but the consequences of further inaction are too severe to ignore.


    Read more

    Latest News

    Read More

    The legal and moral imperative to support neurodivergent employees

    19 May 2024


    Receive the latest HR news and strategic content

    Please note, as per the GDPR Legislation, we need to ensure you are ‘Opted In’ to receive updates from ‘theHRDIRECTOR’. We will NEVER sell, rent, share or give away your data to third parties. We only use it to send information about our products and updates within the HR space To see our Privacy Policy – click here

    Latest HR Jobs

    Assistant Director of Human Resources Claridges We are seeking an exceptional Assistant Director of Human Resources to join the Claridges team. Set in the heart

    University of Exeter – Human ResourcesSalary: The starting salary will be from £26,444 on Grade D, depending on qualifications and experience

    The British Academy – HR TeamSalary: £33,545

    As the Head of Strategic Workforce Transformation, you will be responsible for developing and implementing comprehensive strategies to ensure we have the right… £58,972 –

    Read the latest digital issue of theHRDIRECTOR for FREE

    Read the latest digital issue of theHRDIRECTOR for FREE