View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. News
May 17, 2021

Umbrella non-compliance

By Zoya Malik

 Policy to regulate umbrella market submitted to Treasury and BEIS by independent industry experts with urgent call for action

  • A Former Senior Policy Adviser to HM Treasury (Office of Tax Simplification) and the founder of Offpayroll.Org write to the Treasury and BEIS to outline the steps needed to regulate the umbrella company industry and for the much-needed protection of workers’ rights.
  • The umbrella company industry is currently unregulated and there are many non-compliant companies.
  • It was estimated that £4.5 billion* is misappropriated mainly from workers but also from HMRC in the sector of employment agencies and intermediaries.
  • A conservative estimate of the value of unpaid holiday pay to umbrella company workers in 2016 was at least £1.8bn*. The additional income tax collected on this basis would equate to £300 million.
  • The Coronavirus pandemic, IR35 and the recent off-payroll working reforms have dramatically increased the use of umbrella companies.

Rebecca Seeley Harris, Chair of the Employment Status Forum and a leading expert on employment and tax status, and James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, have submitted a draft policy entitled ‘Umbrella companies – Call for Regulation’ to Jesse Norman, the Financial Secretary to the Treasury and Paul Scully, the Parliamentary Under Secretary of State in the Department for Business, Energy and Industrial Strategy and Minister for Labour Markets. The policy provides clear and concise recommendations on how to regulate the umbrella market, in the absence of any progress on proposed legislation to date.

The policy document calls upon the government to take urgent action to regulate the sector and to provide much-needed protection for umbrella company workers – the government needs to intervene to stop the scandals embroiling the umbrella sector. This includes the practice of withholding holiday pay, incorrect payments of employers’ national insurance contributions, and abuse of the employment allowance tax relief. These all amount to £billions in misappropriation to HMRC and workers. The use of tax avoidance schemes, including the use of so-called ‘mini umbrellas companies’ are estimated to cost workers and HMRC around £1billion annually.

Today it is estimated there are 500 ‘self-regulated’ umbrella companies managing the payroll for 600,000 umbrella company employees. Umbrellas have become a popular vehicle for companies and organisations, managing a temporary workforce to comply firstly with IR35 and now more recently with the off-payroll working rules in the private and public sector. However, with mounting evidence of malpractice reported by umbrella employees, the policy document draws the government’s attention to widespread non-compliance of both tax and employment law and the consistent breach of worker’s rights by rogue umbrella companies.

The policy drafted by Rebecca Seeley Harris, urges the government to act as a matter of priority on unresolved issues and puts forward proposals to help expedite the decision-making and enshrinement in law, as follows:

  • Appoint a Director of Labour Market Enforcement as a matter of urgency to provide strategic direction.
  • Identify whether to form a Single Enforcement Body (SEB) or to expand the remit of the Employment Agency Standards Inspectorate (EAS) to oversee the regulation.
  • Consult on whether the existing legislation (Conduct of Employment Agencies and Employment Businesses Regulations 2003) is the appropriate legislation to regulate umbrella companies; if not
  • clearly establish what type of regulation is needed in the labour market to ensure compliance of the umbrella companies and other intermediaries,
  • consider whether the umbrella companies and other intermediaries should be license,
  • consider whether there should be not for profit umbrella co-operatives, modelling international examples,
  • ensure that any legislation also protects the rights of the worker; and crucially
  • that there is an enforcement body that can assist in recovering holiday pay on behalf of the worker (as HMRC already do for National Minimum Wage).

Rebecca Seeley Harris says it will not only ensure enforcement, uphold workers’ rights and prevent tax evasion but also protect the effort and reputation of umbrella companies that do abide by the law: “I drafted the policy to help the government focus on the task in hand and work with industry experts to ensure any legislation provides robust regulation and protection for workers. It is paramount that the regulation of this industry is expedited because of the rise in the use of umbrella companies as a result of both the Coronavirus pandemic and the off-payroll working rules forcing people through non-compliant umbrellas.

“The abuses in the labour market supply chain, as a whole, need attention and it may be that the government can look at the bigger picture, including legislation such as IR35 and the off-payroll reforms, because it drives immoral behaviour. The issues concerning employment status in the UK are the driving force behind the use of umbrella companies – it is simply irresponsible to let it continue unregulated. I also believe it’s about time the government responded to the Employment Status consultation that closed in 2018.”

James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk says the government can no longer sit on its hands: “Ahead of new off-payroll reforms coming into force in April, 71% of employees deemed ‘inside IR35’ were moved into umbrellas**. The breadth and scale of the stories of malpractice, scams and skimming are distressing and deplorable. It’s clear that ‘accreditation’ and self-regulation of this market is simply not working, and instead has created cartel-like behaviours and unethical practices. It is a fair and reasonable statement to say that umbrella workers are a revenue-generating commodity for the supply chain to exploit.”

“We have witnessed payslips that don’t reconcile, deductions taken from workers but not paid to HMRC, holiday pay being unfairly pocketed, workers forced to use a single umbrella company with artificially inflated fees and agree to ‘opt-out’ of worker protections. These practices are prolific, including amongst the most well-known ‘accredited’ umbrella companies. Any layperson who lifted the lid on the industry would quickly conclude that this market needs urgent intervention and regulation.”

The overall approach of the proposed policy is backed by Matthew Taylor, CEO of the RSA and the architect of the Taylor Review into Modern Working Practices. Matthew originally called for the regulation of the umbrella company sector in his Review of Modern Working Practices and is a strong advocate for change in accordance with the government’s Good Work Plan.

The policy has also been shared with the Office of the Director of Labour Market Enforcement and the Loan Charge APPG. A meeting has been requested with the Financial Secretary to the Treasury to discuss the proposal and the move towards regulation and the protection of workers’ rights.

 

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to International Accounting Bulletin