The government has published its response to the consultation on Umbrellas on 4th March 226.
There is evidence of widespread non-compliance in the umbrella company market resulting in the depriving of workers employment rights.
The Government considers action in the umbrella company market is imperative to protect the most vulnerable workers.
Responses to the consultation has resulted in the government legislating to define umbrella companies, to allow for their regulation and to bring them within scope of the Employment Agency Standards Inspectorate’s (and subsequently, the Fair Work Agency’s) remit, through an amendment to the Employment Rights Bill.
The government also states it is committed to closing the tax gap and making the tax system fairer by ensuring temporary workers are protected from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.
As announced at Autumn Budget 2024, where an umbrella company is used in a labour supply chain to engage a worker, they will bring legislation in to move the responsibility to account for PAYE from the umbrella company that employs the worker, to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client. This is to take effect from April 2026.
The responses to the consultation can be found by clicking the following image:
Unregulated
Unlike employment agencies and employment businesses, which are regulated under the Employment Agencies Act 1973 and the associated Conduct of Employment Agencies and Employment Business Regulations 2003, umbrella companies are generally unregulated. Umbrella companies can be used (though are not exclusively used) to evade obligations to provide employment rights.
Tax non-compliance
Evidence shows widespread tax non-compliance in the umbrella company market.
HMRC data shows that £500 million was lost to disguised remuneration tax avoidance schemes in 2022 to 2023, almost all of which was facilitated by umbrella companies. These schemes can leave taxpayers with substantial tax bills.
Make work pay
The aim is to ensure that workers get comparable rights and protections when working through an umbrella company as they would when taken on directly by an employment business.
Opinion
The list of umbrella organisations named as promoters of tax avoidance schemes that don’t work is ever growing! And so many operate in public sector work areas such as the National Health Service and Local Government.
In some cases workers are well paid, where in other sectors they are not, yet face significant tax debt as a result of dodgy and convoluted avoidance attempts. Who is to blame and why are they being used? Is it all part of the attempts to save money by denying society of the taxes that support those very same industries. What a viscous circle.
So all change with better regulation, responsibility and control. Will this see the end of the various umbrella abuses to both the worker and the tax collector come to an end.
PAYadvice.UK 13/3/2025