Umbrella company regulation backers unfazed despite no vote on amendments

Finance Bill amendments by umbrella company-critical MPs not being put to the vote in the House of Commons isn’t deterring those who want brollies regulated.

“All is certainly not lost,” iWork founder Julia Kermode told ContractorUK last night, reflecting on the speaker not putting forward amendments by David Davis MP.

“Given that the amendments effectively criticise the government's lack of action [on umbrella company regulation]…, the fact that they were properly debated is an achievement.”

She added: “So it certainly does increase the pressure for some real action to be taken… and don't forget -- the government has already committed to regulate the umbrella sector.”

'Needs to be EAS remit extension'

Kermode was referring to the government’s formal acceptance of Matthew Taylor’s recommendation in 2017 -- that umbrella company regulation should be introduced.

But the Treasury’s Jesse Norman has now reiterated this commitment to regulate brollies to MPs, in a potential sign the Poyser-Seeley Harris policy draft has quickened the government’s pace.   

The minister said on Monday: “The government have been clear that there needs to be an extension of the Employment Agency Standards inspectorate in this area.

“And there may well be operational measures that HMRC needs to continue to undertake.”

'Amendments could well have been based on our draft'

A government decision on potentially expanding the EAS’s remit is at the heart of the draft package, submitted last week to Mr Norman by Rebecca Seeley Harris and James Poyser.

The tax lawyer and chartered accountant saw their other big call in the draft – for a Labour Market Enforcement Director to be hired – incorporated into one of Mr Davis’ amendments. 

But while none of the MP’s amends made it to a vote on Monday, Ms Seeley Harris hopes that some of the detail in the 30 pages she submitted may be starting to rub off.

“The MP’s amendments could well have been from our proposal because they were sent in to the Loan Charge APPG”, she told ContractorUK. “But we can’t know that for sure.”

Less positively, neither Mr Sunak nor Mr Norman has replied to the policy draft.

'Umbrellas' unacceptable practices now very clear'

And while its joint authors say they are not overly alarmed (at this early stage), a former leader of the Conservative party says the government is already dodging the issue.

“We have a problem here [with umbrellas], and I am surprised that the government do not really want to recognise it and are avoiding it,” said Sir Iain Duncan Smith.

“The unacceptable practices of umbrella companies have now become very clear. Contractors are being forced into schemes and are being forced by recruitment agencies to use umbrella companies”.

'The worse the malpractice; the greater the kickbacks'

The ex-Tory party leader, who is also a previous work and pensions secretary added: “We are also seeing mini umbrella companies, which some contractors sign up to, believing them to be compliant, only to then discover that they are employed by a company with a different name and owned by a director in, say, the Philippines”.

In line with the concerns of an IT recruitment company director, who writes exclusively for ContractorUK today Sir Iain continued: “The problem is that the worse the level of malpractice, the greater the rewards and kickbacks for the agencies, reducing the revenue for the Treasury [further].”

Despite mentioning such kickbacks three times (and Mr Davis mentioning them too because one of his amends sought to ban them), Mr Norman made no mention of them in his reply.

'Gobsmacked'

“I have to say that I am absolutely gobsmacked that the government still doesn't seem to understand the enormity and importance of protecting contractors and regulating our industry with immediate effect,” says Orca Pay Group CEO Robert Sharp.

“This would have been an ideal opportunity to make a statement that they intended to start cleaning up the industry. Instead, it is yet another opportunity lost.”

Nonetheless, it was still good to hear the two Tories (alongside the SNP’s Alison Thewliss, Labour’s John Spellar and the DUP’s Sammy Wilson) “speaking sense” on brollies according to Mr Poyser.

The off-payroll.org founder also said: “Sir Iain Duncan Smith [rightly] pointed out that ‘umbrella companies are beneficial to recruiters not workers’, and [correctly said] that ‘all inside IR35 workers could easily be paid via recruitment agency payroll’.”

'You're being robbed'

Addressing contractors on LinkedIn, Mr Poyser wrote: “If you want one piece of advice, it's this: until this market is licenced -- not just better legislated for-- think hard about using umbrella companies. No matter how smart you are, I guarantee you're likely being robbed from.”

The draft’s other author said the MPs held a “compelling debate” which refreshingly “recognised the employment rights people lose when they are forced into an umbrella.”

Ms Seeley Harris, who is a former adviser on IR35 to the Treasury continued: “The proposed amendments 33 and NC31 would have moved us a step closer to recognising that there needs to be a material change in how the umbrella market operates. 

“However, this was not to be and instead regulation, which will have a more lasting impact, is now the only way ahead.”

'Problems to solve'

Before her comments last night, Andrew Jones MP suggested that the motion had the right sort of aims and ideas, but the wrong format and setting.

“There are problems to solve, particularly in respect of the difference between the originators of the schemes and those who sign up to them in good faith.

“Although I have no doubt that we have problems to solve, I am not sure that the issue of umbrella companies should be dealt with in a Finance Bill,” Mr Jones said. “It is perhaps more of an unemployment issue than a finance one”.

'The hammered; the vulnerable and the abusers'

At the debate, Sir Iain Duncan Smith sounded like he couldn’t disagree more.

In an impassioned, fact-filled speech demonstrating a sound knowledge of the contractor sector, he argued: “This is something that we can rectify, and we have the capacity to rectify it.

“We should think of what will happen if it goes much further. We should think of the loan charge and the huge human problems that were caused by that and the attempt by the Treasury to use retrospective legislation to grab money back.

“Who got hammered in all that? Not the organisations that were doing these things, but the individuals who were led to believe they were in the right set-up. It is always going to be them who get hammered. I thought the purpose of government was to protect the vulnerable and deal with those who are abusing them.”

'Treasury and HMRC's confused approach'

Mr Davis enforced: “The Treasury and HMRC’s confused approach to the whole sector enabled the shameful loan charge scandal with thousands of people in financial ruin, families torn apart and seven people so trapped that they tragically ended their own lives.

Failure to act on the mis-selling and illegitimate operation of umbrella schemes risks another scandal on a similar scale.

"That cannot be allowed to happen. We have a duty to act. Just as our key workers have protected us over the past year, it is time we started protecting them.”

'Committed'

On behalf of the government, Mr Norman responded: “There is value to umbrella companies, but that is not to say that there is not also abuse.

“The government are very focused on that…[and MPs mentioned] some of the measures that HMRC is taking to combat umbrella companies that are disobeying the rules or trading fraudulently, and we are committed to extending the remit of the Employment Agency Standards Inspectorate to support best practice in the area.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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