man holding red umbrella

Plans for umbrella regulation in “precarious position”

Government has repeatedly delayed sector regulation, leaving contractors exposed to non-compliance risks

The government’s plans to regulate the umbrella sector are in a “precarious position” and at risk of further delay, according to IPSE.

The body issued the warning following Tax Administration and Maintenance Day, when the government distanced itself from the possibility of introducing regulation to the sector.

Tax Administration and Maintenance Day has become an annual event, used by the government to issue technical updates on tax policy and live consultations.

While restating its concerns over “the scale of non-compliance in the umbrella company market”, however, the government did not commit to regulation.

Instead, it hinted at further consultation on the introduction of a “due diligence requirement” and suggested that HMRC would publish further guidance later this year.

With HMRC having recently identified several non-compliant umbrella companies, the continued failure to regulate the sector leaves thousands of self-employed workers – including contractors – at risk of tax avoidance.


Disguised remuneration schemes remain common

The most common forms of tax avoidance in the sector are so-called ‘disguised remuneration’ schemes. This is when umbrella workers receive their pay in such a way that the income is untaxed.

Previously of little concern to HMRC, the department has since branded these mechanisms tax avoidance and aggressively attempted to recover revenue ‘lost’ to these schemes – as demonstrated by the Loan Charge scandal.

However, the lack of regulatory oversight means unscrupulous operators continue to target the umbrella industry, with disguised remuneration or other elaborately designed schemes.

In either case, rather than making the relevant deductions from a worker’s pay, these operators use convoluted arrangements to avoid paying tax on the fees they handle. In these circumstances, HMRC attempts to recover any lost tax revenue from the workers who have fallen victim to these schemes, rather than the scheme operators.

Following the introduction of IR35 reform in the public and private sectors, many more contractors have only been engaged via umbrella companies for outside IR35 roles. As a result, they – and other temporary workers – remain exposed to the possibility of tax avoidance.

HMRC is aware of the issue and maintains a list of known scheme operators and promoters, which umbrella workers are advised to regularly check.

But the tax office has faced criticism in recent months for removing promoters from the list, as well as for failing to target scheme promoters and operators, rather than the workers who are targeted by them.


‘We need some urgency’

New guidance from HMRC – including “an online pay-checking tool to help umbrella company workers to check whether the correct deductions are being made from their pay” – will offer some help to umbrella workers.

While IPSE is supportive of these measures, the body’s Policy Director, Andy Chamberlain, called on the government to address the issue of tax avoidance directly.

“It’s great that the government is minded to do something about non-compliance in the umbrella company sector”, Chamberlain said.

“Contractors want to see a regulated umbrella sector, and we’re ready to work with the government to chalk up how a due diligence requirement could work.

“But we need some urgency from the government. It’s been almost a year since it began consulting on the proposals – ones that should have been in place before the off-payroll working rules”, he added.

“With an election on the horizon, the plans are in a precarious position and risk being delayed even further”, Chamberlain concluded.


  • Andy W says:

    Umbrella companies are in a difficult position because of Government policies, I was travelling to a number of sites around the UK and my umbrella company stopped paying expenses simply because I had visited one site more than 40% of my time for a few months. They didn’t seem to understand the 2 year / 40% rule or had just decided it was easier to refuse expenses. As a result I stopped working via Umbrella and wont again unless I am home based with no significant travel.

  • worn_out says:

    They have absolutely no intention of regulating umbrella companies. They deliberately created the market for these pointless middlemen, PAYE through the agent was the option previously with a smaller “commission”, and they are happy for the unscrupulous to profit from it while the contractor bears all the financial risk of the umbrella company being non-compliant.

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