‘Sufficient funding’ needed to tackle unethical umbrella companies

Government urged to allocate ‘sufficient funding’ to regulate ‘unscrupulous’ umbrella companies 

Tax experts are putting pressure on the government to allocate enough funds in the upcoming Spending Review to establish a Single Enforcement Body (SEB), as proposed by the Department of Business, Energy and Industrial Strategy (BEIS) earlier this year.

SEB was initially put forward by Rebecca Seeley-Harris, chair of employment status forum and former adviser to the Treasury, and James Poyser, CEO of inniAccounts, in a bid to tackle the unethical practices by some umbrella companies.

The pair have now made a submission to the Spending Review and have written an open letter to Paul Scully MP, minister of state (London) for BEIS, saying that failure to secure funds could mean the continued abuse of workers’ rights and tax evasion by “unscrupulous umbrellas.”

Urgent need for umbrella companies to be regulated

The letter, seen by Contractor Weekly, states a number of reasons why “it is vitally important, now more than ever, that the umbrella company industry should be regulated.”

This includes the recent cases of hacking and website cloning, which has resulted in thousands of workers not being paid. Giant Group reported last month that it had been hacked and could not access its systems or pay its workers.

Unified Payroll also reported that it could not pay its workers because of “security issues” with its bank account, which it said was an “unprecedented and very unfortunate situation.”

And just last week, the FCSA – a membership body dedicated to promoting supply chain compliance in the self-employed sector – warned that some of its member firms appeared to be the victim of cloning and it was assumed this was linked to fraud.

IR35 reform could see more self-employed people ‘walk out’

The letter also highlighted that many HGV drivers are “reluctant to continue” as they are being pushed into inside IR35 contracts, following the changes to the off-payroll rules.

Harris and Poyser say they are concerned that care assistants, nurses, locum doctors all could be the “next cohort of workers to walk out over unfair conditions of employment.”

Another reason referenced was the fraud related to so-called mini umbrella companies, which was exposed earlier this year and is estimated to cost workers and HMRC £1 billion a year.

It stated that before 2020, the value of unpaid holiday to contractors working via umbrella companies was at least £1.8 billion, equating to £300 million in lost income tax. That figure now stands at £2.5 billion and in total, “misappropriated funds from umbrella ‘skims and scams’ are estimated to cost £4.5 billion.”

Regulation also need to ‘prevent abuses’ in supply chain

Harris and Poyser wrote: “These are unprecedented times and it calls for unprecedented measures. IR35 has created the growth of umbrellas leading to an unfair and unethical market. 

“What’s more, it is astounding that companies handling millions of pounds of other peoples’ pay, remain unregulated. It is an unsustainable situation for workers, employers and taxpayers.

“It’s clear from the figures […] that non-compliant umbrellas have a competitive advantage over honest ones. Regulation is desperately needed in order to level the playing field. And, as our policy sets out, regulation must also be introduced to prevent abuses in the supply chain, between the agency and the umbrella company.”

The pair also said that if “sufficient funds” are not allocated to the SEB, then existing bodies such as the Employment Agencies Standards Inspectorate, “will need an urgent increase in funding to protect umbrella workers.”