Government abandons plans to regulate umbrella industry

Manifesto pledge to establish Single Enforcement Body ditched by Sunak

The umbrella industry will not be regulated for the foreseeable future, with the government confirming it has shelved its plans to establish a single enforcement body (SEB), according to a report in the Telegraph.

The single enforcement body would have unified three bodies which currently police compliance across areas of employment, providing greater protections to vulnerable workers and introducing regulatory reform for umbrella companies.

The SEB was a hallmark manifesto pledge made by the former Prime Minister, Boris Johnson, in the run-up to the last general election.

Speaking to MPs on Tuesday 13th December, Grant Shapps – the Secretary of State for Business, Energy and Industrial Strategy – confirmed that the employment bill as a whole is not “on the cards” for the current government.

Shapps also said that the government is “more interested” in ensuring that the bodies with current regulatory oversight are “operating effectively”.

“Short-sighted move”

There are three bodies which enforce compliance with employment laws and regulations: HMRC National Minimum Wage Enforcement, the Employment Agency Standards Inspectorate and the Gangmasters and Labour Abuse Authority.

However, these bodies do not regulate the umbrella sector, leaving umbrella workers unprotected from tax avoidance schemes and rogue operators.

Julia Kermode, founder of IWORK – a body championing temporary workers – also called the move “another kick in the teeth for workers” who work for “unscrupulous umbrella companies and employment agencies”.

“By shelving plans to introduce the Single Enforcement Body and in turn, regulate the umbrella industry, the government is showing an astonishing disregard for the millions of workers”, she added.

And Fred Dures, the founder of the specialist payroll auditor, PayePass, said the government’s abandoning of the single enforcement body was “extremely disappointing”.

“This short-sighted move from the government effectively rules out regulation any time soon”, he added, noting that “the onus falls on umbrella companies to self-regulate – something which isn’t being prioritised”.

“Abandoning the Single Enforcement Body also increases the onus on recruiters and end clients that engage umbrella companies to carry out their own due diligence,” Dures concluded.

Independent workers remain at risk

Failure to conduct due diligence when appointing an umbrella company could see contractors unknowingly operating via a tax avoidance scheme.

HMRC recovers unpaid taxes from scheme participants rather than scheme operators, and thousands of contractors have been hit with retrospective tax bills as a result.

Such schemes disguise pay in non-taxable forms, like loans, to avoid paying the taxes owed. HMRC’s approach to recovering these taxes has been the introduction of the Loan Charge, which handed contractors tax bills worth up to £3.2bn to HMRC.

If you believe you may be involved in a tax avoidance scheme, you can use HMRC’s interactive risk-checking tool. Contractors can also report suspected tax avoidance to HMRC online.

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