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UK government urged to publish findings of umbrella company market consultation

Contracting market industry stakeholders are questioning why it’s taking the UK government so long to publish the findings of its consultation about how the umbrella industry operates

The UK government is coming under pressure to publish the findings of a consultation into how the umbrella company market works now that more than a year has passed since the process concluded.

As previously reported by Computer Weekly, the consultation – overseen by HM Revenue & Customs (HMRC), HM Treasury, and the Department for Business, Energy and Industrial Strategy (BEIS) – launched in November 2021, with the call to evidence portion of the process concluding in February 2022.

Employment agencies, contractors and hiring firms were encouraged to participate in the process, with these parties all actively encouraged to share their insights and experiences of working with umbrella companies.

A 40-page call for evidence consultation document stated that there has been a marked rise in the number of contractors providing services through umbrella companies from 100,000 during the 2007-2008 tax year to around five times that number in November 2021.

One of the reasons why the number of umbrella company contractors is known to have gone up in recent years is due to a reform of how the IR35 anti-tax avoidance legislation works in both the public and private sector.

These changes, respectively introduced to the public and private sector in April 2017 and April 2021, saw contractors cede control for determining how they should be taxed to the organisations that hire them.

Previously, it was down to contractors to determine for themselves if the work they did and how it was performed means they should be classified as working inside IR35 and, as such, taxed in the same way a permanent employee would be or as outside IR35, which means they are taxed as an off-payroll worker.

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The shift in responsibility is known to have placed a sizeable administrative burden on end-hiring organisations, prompting many of them to tweak their hiring policies to prohibit the use of contractors unless they provide their services through umbrella companies.

Some 14 months have passed since the consultation concluded, and contracting industry market stakeholders are querying when the findings of it will be made public, claiming the radio silence from government on the matter is putting contractors at continued and heightened financial risk.

According to a post on the web page for the consultation, the government is still in the process of analysing the feedback it received during the three-month consultation period.  

Computer Weekly contacted the government for an update on when the outcome of the consultation is expected to be made public, but had not received a response by the time of publication.

As extensively documented by Computer Weekly in the past, there are numerous examples and instances whereby non-compliant umbrella companies have been found to be fronts for tax avoidance schemes, which in turn have left tens of thousands of IT contractors facing life-changing demands for unpaid tax.

Fred Dures, founder of payroll auditing organisation PayePass, said: “The silence is deafening. It’s time the government took action, which starts by at least responding to its very own consultation imminently. Right now, it just feels like this consultation was launched as lip service. 

“The longer the government buries its head in the sand, the more workers there are exposed to tax avoidance schemes. To make matters worse, these schemes see billions in tax slip through the net – at a time when the economy and public services need it more than ever.”

Pace of progress

The lack of updates on the outcome of the consultation is in keeping with the government’s pace of progress on pushing through regulation for umbrella companies, said Dures.   

“The lack of urgency is startling, particularly in a sector where hundreds of billions pass through it every year,” he said. “The government promised to regulate the umbrella industry in 2017, yet here we are, six years later. It’s anybody’s guess as to what the government plans to do next.

“It’s in everybody’s interest to do something. A plan to stamp out non-compliance in the umbrella industry means workers and businesses are better protected, with the Treasury collecting more in tax.”

Julia Kermode, founder of independent worker consultancy IWork, is among the parties calling for the government to clarify when the findings of the consultation will be made public.

“It’s just not good enough,” she said. “500,000 workers – although I’d argue there are many more than that – have been all but abandoned by the government, which fails to deliver on promise after promise. We’re not asking for the world here. We simply want a response and a plan of action to stop tax avoidance schemes from luring in unsuspecting workers and leaving them with devastating tax bills.” 

Seb Maley, CEO of contracting authority Qdos, said why the government is “still sitting on its hands” when it comes to regulating the umbrella industry is baffling.

“Westminster was hell-bent on introducing the off-payroll working rules to stamp out what it perceived as non-compliance among contractors,” he said. “But this has led to significant growth in the umbrella industry, where tax avoidance schemes operate with relative ease. By trying to stop one supposed problem, the government has created another.”

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