Government’s consultation on umbrella companies is a ‘strong start’, say industry experts
Last week, the government launched a consultation on the role umbrella companies have in the supply chain and labour market.
The consultation, which is a collaboration between HMRC, the Treasury and the Department for Business, Energy and Industrial Strategy, comes amid fears that some firms are failing to comply with tax regulations.
Dubbed the ‘wild west’, professional organisations have raised concerns that some umbrella companies are taking billions of pounds from contractors and breaching workers’ rights.
These organisations act as the middle man between clients or recruitment agencies and temporary staff such as freelancers and contractors, and will often deal with payroll issues.
Number of contractors working this way soars
The number of workers using such an intermediary has risen by more than six times in the last 12 years, according to the government consultation document.
In 2008, HMRC estimated the number of individuals working via these organisations to be around 100,000.
This figure jumped to between 300,000 and 400,00 in 2015 and in 2021, it is estimated to have risen to more than 600,000.
The document acknowledges that the umbrella model became popular after the IR35 legislation was introduced in 2000, but does not address the cause of the more recent rise in contractors working via umbrellas.
It states: “The government recognises the concerns expressed by parliamentarians and other stakeholders about the risks that abuse of the umbrella company model can pose to workers and to taxpayers.
“[…] This call for evidence is intended to complement the government’s commitment to bring umbrella companies into scope for labour market enforcement.”
Businesses and workers encouraged to respond
Joanne Harris, head of technical, compliance and payroll at Parasol Group – an umbrella company, said: “The news of a government consultation on the role of umbrella companies in the labour market is a strong start, and hopefully marks a step towards long-awaited umbrella company regulation, something we have strongly advocated for.
“This latest announcement, combined with the appointment of Margaret Beels OBE to the position of director of labour market enforcement on 22 November will hopefully be instrumental in helping to protect potentially vulnerable workers from falling foul of non-compliant umbrella companies.
“In light of this, I would encourage end hirers, employment businesses and most importantly workers that have been employed by an umbrella company to respond to this consultation.
“Effective policing of umbrella companies is too important and time-consuming for the responsibility to be placed exclusively on recruitment agencies.
“I remain hopeful that the new single enforcement body has umbrella regulation and enforcement high on the agenda, and this latest announcement is an encouraging step in the right direction.”
The consultation closes on 22 February 2022.