Put Single Enforcement Body to regulate umbrella companies on a timetable, Treasury told

The Lords aren’t alone in pressing the government to get specific about the Single Enforcement Body to regulate contractor umbrella companies.

In its submission to HM Treasury’s now-closed call for evidence on umbrellas, the Fair Umbrella Campaign asks the government to set a “timeline for the creation of the new SEB.”

By also saying it “would like” the “primary legislation” timetable for the SEB, the campaign is effectively echoing a call by the House of Lords Economic Affairs Finance Bill Sub-Committee.

'We were assured'

But James Poyser, an accountant, and Rebecca Seeley Harris, a lawyer go further.

Founders of the campaign, they tell the Treasury: “In November 2021, we were assured by BEIS that the funding for the SEB from the Spending Review had been allocated.

“And [we were assured] that it is developing detailed plans for the new enforcement body. [But now] it is recommended that the government considers…for the SEB…[that] employers are named for holiday pay abuses.”

'Naming and shaming'

While it says brollies should receive “education,” the campaign believes civil penalties, but also “reputational penalties” are needed, as “‘naming and shaming’ is a strong deterrent.”

Clarity Umbrella, an umbrella company, is the type of business which would be covered by the holiday pay ‘naming and shaming’ power sought for the SEB.

But appearing to recognise umbrella holiday pay as a contentious issue, Clarity actually asked contractors about their holiday pay preferences to form the company’s response to the Treasury.

'Accrued or advanced?'

In an online post before the call for evidence officially closed on February 22nd, Clarity’s managing director Lucy Smith asked contractors:

“If you have to work via an umbrella company and we have to account for holiday pay from your assignment day rate, would you choose to accrue holiday, or have it advanced in each pay packet?”

However if ReLegal Consulting gets its way, one aspect of that question might soon be moot.

'Need to ban assignment rate'

In fact, there is now a “need to ban” the term ‘assignment rate’ and by law, force agencies to only advertise the gross rate instead, according to the law firm’s Ms Seeley Harris.

“It provides no meaningful value for workers and is simply used as a marketing tactic by agents to inflate the headline rate for a job,” wrote the lawyer, who referenced a ContractorUK article on how agency rates work in her joint-submission to the Treasury.

She told officials: “We recommend that the use of ‘assignment rates’ in advertising or negotiation are deemed unlawful. [It provides] a gateway to abuse of workers on a mass scale”.

'Ban PSLs'

But Fair Umbrella Campaign submission co-author Mr Poyser says the biggest “consistency” in his conversations with respondents to the Treasury’s call was the insistence that a ban must apply to Preferred Supplier Lists and incentives.

Reflecting after the call closed on Tuesday, he wrote: “While PSLs may have started with good intentions, it's clear they have been transformed by many into an aggressive and unfair barrier to competition, presenting a protectionist revenue opportunity for recruitment agencies.

“PSLs also make a complete mockery of the oft-repeated argument that umbrella companies provide continuity of employment.

“This is a mistruth, and agency PSLs present a complete and absolute blocker to employment continuity and denies workers freedom. They must be abolished and replaced with regulation [or] licencing.”

'Many workers now using brollies'

Also boss at off-payroll.org, Mr Poyser isn’t the only adviser keeping in mind those affected most -- umbrella contractors; the workers, who are technically the umbrella’s employees.

“Following the introduction of the off-payroll working rules last year, many workers are now operating through umbrella companies and this increase will have an impact on their earnings,” says Crawford Temple.

CEO at Professional Passport, Mr Temple added:“[Remember] the rate paid to the umbrella company is the umbrella company’s income. From this, the umbrella deducts their employment costs which includes Employer National Insurance.

“With this rising from 13.8% to 15.05% from April, this will have an impact on the amount that is available for payment to the worker. On top of this, the worker will also have an additional 1.25% charge on their Employee National Insurance.”

'Hacking of umbrella companies has hit 15,000 workers'

Yet there is a bigger dent in contractor take-home pay, and although it may eventually be buffed out, it is hurting many thousands of umbrella users right now.

“We believe over 15,000 workers have been impacted by hacking in the last six months alone,” the Treasury submission by the Fair Umbrella Company states, referring to cyber-attacks on Optionis, Brookson and Giant.

“Whilst legislation will not prevent such attacks, we believe more can be done to ensure that umbrella companies are dedicating appropriate resources to cybersecurity.”

'Mass exodus'

And ominously, a knock-on effect of a few big brollies being hacked could cause even greater problem for the exchequer’s coffers.

“There are some [industry commentators] advocating a mass exodus from the larger umbrellas -- but be careful,” began WTT Consulting.

“We have an extensive library of tax avoidance schemes [dating] from 2000 to yesterday, and they share some characteristics.

“All of them were born in a time of change or were given an incentive to be used by new legislation. All of them promised to keep users at their previous take home rate - or better it.

“And,” added WTT’s tax director Graham Webber, “all of them were sold without all the risks being explained. Oh and all of them are under enquiry by HMRC directly or indirectly.”

'Many decent brollies'

Louise Rayner, founder of NumberMill Accounting, believes that often, a lot of the “negativity” around umbrella companies is caused by just a few operators.

In fact, as opposed to “dodgy ones,” there are “many decent, properly-run accredited [umbrella] companies out there”, she wrote on LinkedIn.

But one IT contractor didn’t respond to the Treasury -- even if it was meant to be for the noble-sounding aim of turning the rogues into the reputable.

“No can do,” the contractor retorted to the Low Incomes Tax Reform Group urging ContractorUK readers to submit by Feb 22nd. “It only adds credibility to the whole IR35 debacle.”

Sounding undeterred, the LITRG said change on umbrella companies could only come about once the Treasury saw “people coming forward.”

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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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