Government Consultation on Tackling Non-Compliance in the Umbrella Company Market
HM Treasury is consulting on proposals to tackle non-compliance with both tax and employment rights by umbrella companies.
The consultation, which began on 6 June 2023, aims to gather views on potential solutions and closes on 29 August 2023. The outcome could have a significant impact on employment businesses and users of agency staff.
Defining Umbrella Companies
The umbrella company market has been under scrutiny due to concerns regarding the exploitation of workers and tax avoidance. First, the Government consultation seeks to define what constitutes an umbrella company.
Two possible definitions are presented by the consultation for consideration, one looking at how umbrella companies are engaged and the other at the nature of their activity (see paragraphs 3.11 - 3.29 of the consultation). The consultation sets out the potential benefits and risks of each and asks three specific questions the Government would like feedback on.
Setting Minimum Standards
Secondly, the consultation seeks views on how umbrella companies should be regulated. The two options are:
- a targeted approach, focussing on key areas such as the handling of holiday pay
- a wider approach setting minimum standards for the way umbrella companies are involved in the agency work supply chain
Tax Avoidance
Finally, tax non-compliance is clearly a significant concern in the umbrella company market, and the Government explores various options for addressing this issue, some of which involve placing liability for tax non-compliance onto the employment agency or end user.
Looking Ahead
If you are an employment business you will want to understand the detail of the options being put forward in advance of the close of consultation on 29 August 2023. This will allow you to make submissions for consideration before any final decision around regulation is made.
If your business uses agency staff it will be important to understand the issues around the use of umbrella companies. You are likely to want to know whether the employment businesses you engage use umbrella companies and, if so, that those umbrella companies are compliant with current and future regulation. When contracting with employment businesses, it will be important to be clear about who bears liability for any compliance issues relating to the use of umbrella companies.