HMRC Publishes Responses to Consultation on Recommendations for Agency Workers following Matthew Taylor Report on Modern Working Practices in the UK.
The Matthew Taylor Report on Modern Working Practices was commissioned by the Government and published on 7th July 2017. Its purpose was to consider the UK’s working conditions and how legislation and business practices might need to adapt to more modernized ways of working. The review made certain recommendations regarding Agency Workers, which resulted in the consultation document on Agency Worker Recommendations, published in February this year by the Department for Business, Energy and Industrial Strategy (BEIS).
The purpose of the consultation document as set out by BEIS stated;
“We need to ensure that we strike the right balance between maintaining the flexibility in the labour market…whilst equally ensuring that, in a changing work environment, workers are afforded the necessary rights and protections, and have access to the information they require.”
Over 50 responses from agencies, advisory bodies and other intermediaries were submitted, with a further 35 responses submitted by individuals themselves. Many individuals had been advised to respond by their local MP, or had heard about the consultation via a trade association.
Of the individuals that responded to the consultation document, some used this as an opportunity to voice their concerns regarding the off-payroll rules introduced within the Public Sector in April last year and, as a result of the legislation, being forced to work inside of IR35 through an umbrella company. One individual commented; “I was forced to use them due to IR35, and it was terrible, I could not get a clear answer as to how they worked out my pay.”
The popularity of umbrella companies has increased since the introduction of IR35 reform within the Public Sector, with many end clients choosing to force off-payroll staff into operating through an umbrella to absolve themselves of any liability concerning employment status, but as indicated above, many have encountered difficulties in having to operate in this way.
The Citizens Advice Bureau in its response to the consultation stated that;
“A common manifestation of unreasonable terms is where a worker is promised a high hourly rate at recruitment. The worker is then required to enter into an employment relationship with an umbrella company which applies charges and deductions to wages. These charges include ‘admin fees’ and charging workers an amount for employer’s NI contributions. These fees will have been agreed contractually but a worker has no choice whether to take up employment with the umbrella company. Such deductions are lawful as long as they don’t reduce the wage below the NMW level.”
Not all umbrella companies operate in a compliant manner, with some offering contrived schemes to increase take home pay. In its response to the consultation document, the Freelancer and Contractor Services Association (FCSA), stated;
“Without regulation rogue business will become even more attractive, as an unregulated element of the sector, with a competitive advantage and therefore create an un-level playing field that is distorted against compliant businesses…The size of the rogue business market is unquantified but it has certainly grown exponentially in response to IR35 changes in the Public Sector…”
Increased regulation over so called umbrella companies is something that is certainly called for particularly due to the increased use, in light of public sector reform; it is of course worth noting that there are also compliant umbrella companies out there and it is important to recognise the differences between disreputable intermediaries and those who are genuinely playing by the rules and ensuring that workers are treated fairly.
It is ironic that the reform of IR35 within the public sector, although being introduced to put a stop to the use of limited companies to avoid paying the appropriate tax, has created a form of tax avoidance by another party in the contractual chain.
The FCSA touched upon the apparent lack of insight by stating;
“This might seem obvious, but we have been consistently disappointed at the lack of…valuation of significant tax legislation impacting on our sector in recent years.”
This statement will resonate with many who have been affected, those who are yet to be affected by IR35 reform, and by those who have used a tax avoidance scheme, which will mean they will also be affected by the extremely controversial retroactive Loan Charge, being introduced from April 2019.