New umbrella company guidance by HMRC raises prospect of regulation
HMRC has made a series of IR35-reform inspired updates on working through an umbrella company, but contractor industry figures still sound unsatisfied.
In one of the updates, Working Through an Umbrella Company, an accountant points out that HMRC says the Key Information Document and Reconciliation Statement are outlined separately, when in practice they have morphed into one document.
But the founder of CWC Accounting Solutions, Carolyn Walsh, also says the HMRC update then fails to address whether the morphing is compliant, so it remains “anyone’s guess” if providing contractors with just one pay-related document is lawful.
Published last week following the Loan Charge APPG report on How Contracting Should Work which criticised umbrellas, a spokesman for HMRC said its updates may prove “useful” to ContractorUK readers following “changes to the off-payroll working rules.”
“HMRC has published guidance to help contractors engaged through umbrella companies understand how they work and how they are paid,” the HMRC spokesman also said in a statement to ContractorUK.
The Revenue spokesman added: “This will help address some of the common questions contractors may have regarding umbrella companies.”
But reflecting after the APPG report, Neil Carberry, the CEO of agency body the REC, said the answer to the problems around umbrellas was “both” regulation “AND” industry agreeing to “step up”.
Despite the implication that for the regulatory side, two new guidance updates from HMRC might not suffice (the second HMRC update on umbrellas is to its off-payroll working guidance), another recruitment boss believes the Revenue’s timing is about right.
“We’ve already seen an interest from ‘no win, no fee’ solicitors willing to pick up claims [from umbrella company workers], so we could be on the brink of a ‘PPI’-situation in the recruitment world,” says Matt Collingwood, chief executive of IT jobs firm VIQU.
“[Because] if umbrella company workers are seeing unlawful deductions from their salary, such as employer’s national insurance, they will more than likely have grounds to make a claim for those losses.”
'Regulation would be an enhancer'
Online on Friday, a tax lawyer preferred that the timing of the HMRC updates on umbrella working, which have been made before private sector IR35 reform turning one-month-old on Thursday, was “interesting.”
“Of course, what the umbrella companies actually need is to be regulated”, said the lawyer, Rebecca Seeley Harris. “[This would] enhance the industry. Let's hope it's coming soon.”
And umbrellas themselves are far from objecting to the prospect of them being regulated. “Couldn’t agree more,” says Orca Pay Group CEO Robert Sharp. “The sooner, the better.”
'Absolutely we need regulating'
Similarly, Clarity Umbrella’s Lucy Smith believes regulation is “absolutely” the way to go. But she welcomed the Revenue clearing up areas of confusion in the meantime.
“Nice to see…HMRC [now state:] ‘The rate paid to the umbrella company by the agency will need to cover the costs of the employer National Insurance contributions. The umbrella company will use this money to pay employer contributions and not deduct the contributions from your gross pay.’
“[And], ‘If you leave the umbrella company with annual leave owing to you, the company must pay you for it.’”
'A fallout is on the horizon'
Smith said she wonders if the publication of guidance from the Revenue on how umbrella companies should operate is a sign that “regulation is getting closer.”
If it is not a sign of things to come from HMRC, then VIQU’s Mr Collingwood sounds very concerned – for potentially all parties in the contractual supply chain.
“In the umbrella sector, I believe a fallout is on the horizon,” he warned. “We are already seeing some questionable umbrella companies appearing, and I believe we are going to see this unquestionably negative impact of IR35 reform rear its ugly head with problems for all -- very soon.”