Ahead of the third reading of the Finance Bill in the House of Commons last week (24th May 2021), MPs were expected to vote on two amendments that would affect the umbrella company industry.
The first called for Chancellor Rishi Sunak to review issues relating to tax avoidance and concerns workers who provide their services through intermediaries, including umbrella companies.
The second proposed that this review should examine if tweaking the off-payroll rules would either prohibit umbrella companies from operating altogether or curb their activities and, in which case, whether it would improve or worsen non-compliance.
The amendments, which were tabled by MP David Davies with the support of Iain Duncan Smith and Andrew Rosindell, were in response to the numerous reports linking umbrella companies with tax avoidance schemes and other malpractice.
Davies told the House of Commons that non-compliant umbrella companies were using “sleight of hand tactics” to skim money from contractors on their books in order to maximise their profits.
He said: “This includes: misrepresenting tax thresholds, skimming off pension contributions and other payments such as the apprenticeship levy, forcing contractors to opt out of their rights as agency workers and withholding billions in holiday pay that is legally due [to contractors].
“The frauds involved here cost the taxpayer hundreds of millions of pounds each year in lost tax, but as well as that, the boom of these non-compliant companies means that legitimate umbrella firms are being run out of business by them.”
Despite being debated at length in the Commons, the vote was denied and the amendments were not selected for inclusion in the Finance Bill. However, industry experts said the fact that it was given so much airtime can only be a good thing.
Rebecca Seeley Harris, Chair of the Employment Status Forum, and James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, issued a joint statement saying while it was “disappointing”, the debate “recognised the employment rights people lose when they are forced into an umbrella.”
The pair, who recently put forward a draft policy proposal to regulate the umbrella sector, added that regulation is the only way forward and will have a “more lasting impact.”
Harris and Poyser said: “It will offer greater protection to the some 600,000 people who are being exposed to employment rights abuses and lost income through unethical, but not yet illegal payslip skims and scams, and tax evasion schemes with no independent body to turn to for help.
“[…] Self-regulation is a misnomer. For too long rogue and unethical practitioners have exploited loop-holes in tax and employment law.”
The draft policy estimates the value of unpaid holiday pay to contractors working via umbrella companies in 2016 to be at least £1.8 billion – a figure which is likely to be higher because of the pandemic.
Harris and Poyser added: “It is also our opinion, that a ban is unnecessary as there is a place for umbrellas in the labour supply chain to some extent. It is also true that there are a number of very well-run umbrellas who provide a template for success.
“[Our draft policy] addresses the current conflicts between employment policy and taxation law, recognises how the full labour supply chain operates now and will in the future, and considers the flexible ways people want to work and employers want to hire – especially pertinent as we build Britain’s recovery.
“We urge the government to review the policy and appoint a director of Labour Market Enforcement so positive steps to protect worker’s rights and HMRC revenue are made.”