Following the call for evidence in the umbrella company market with over 400 responses., the government have published the Summary of Responses document.
The Call for Evidence was originally published in November 2021 and closed on 22nd February 2022. It asked for views and evidence to understand the reasons businesses and individuals use umbrella companies and reported issues in the umbrella company market. It was also intended to support policy development and prevent forms of abuse.
The main role of umbrella companies in the labour market is to employ temporary workers on behalf of employment businesses and end clients. They do not secure work for the employee. That role is usually carried out by an employment business further up the supply chain.
The worker is then supplied to provide services to the end client as directed. The umbrella company role as the employer is to pay salary, deduct Income Tax and National Insurance contributions (NICs) and provide employment rights such as holiday pay, statutory sick pay and workplace pension auto-enrolment.
Although the government wants to encourage a ‘flexible, dynamic labour market’, this should not be achieved at the expense of workers. New ways of working must lead to fair outcomes for workers, while guarding against abuse by fraudulent participants.
Responses were received from a full range of participants in the flexible labour market, including workers, employment businesses, end clients, various representative bodies (including PAYadvice.UK) , and umbrella companies. A significant proportion came from workers.
The main areas of coverage were:
- The Role of Umbrella Companies in the Labour Market – often to simplify responsibilities in relation to employment rights for the engager
- Employment Rights Issues in the Umbrella Company Market – Most workers stated that they worked for an umbrella company as a requirement of an end-client or employment business. They had no option but to take up an employment through an umbrella company, otherwise lose the work. There was widespread confusion about pay structures, as well as difficulties in understanding their payslip. Many were unclear about whether they were entitled to employment rights.
- Tax Non-Compliance in the Umbrella Company Market – the government is aware of: disguised remuneration tax avoidance and fraud.
“The umbrella company receives assignment income paid by the employment business for the work undertaken. Like any employer, the umbrella must cover employment costs, including Employer’s National Insurance, holiday pay, the Apprenticeship Levy, and pension contributions. These employment costs are deducted from the assignment income”.
The current operation of the umbrella market by many of the respondents suggested they cause harm to workers, businesses and taxpayers.
HMRC have named a number of rogue umbrella schemes that have been caught promoting tax avoidance schemes which do not work.
Consultation – Tackling non-compliance in the umbrella company market
The government have launched a consultation which proposes options to regulate umbrella companies and tackle non-compliance.
The purpose of the consultation is to seek views on proposals to tackle non-compliance with both tax and employment rights by umbrella companies.
The are three main objectives for the umbrella company market:
- Deliver improved outcomes for workers
- Support a level playing field in the umbrella company market
- Protect taxpayers from the significant revenue losses that currently arise from non-compliance.
This includes exploring proposal for minimum legislative standards for umbrella companies and how such standards should be enforced.
These are to enable both people and businesses ‘to succeed in the labour market, supporting economic growth and ensuring everybody feels its benefits’.
The consultation closes on 29th August 2023.
PAYadvice.UK 8/6/2023
