Government umbrella company consultation ‘puts brollies’ future in doubt’

Contractor umbrella company bosses have begun to meet face-to-face with the government over its ‘inordinately delayed’ plans to regulate umbrella companies.

One boss who last week met with “various government bodies” in light of ‘Tackling Compliance in the Umbrella Company Market’ by HMRC, HMT and DBT, braved that the “real problem” is HMRC.

Or that’s what the boss, Orca Pay Group’s Rob Sharp said before the meetings, which he also said he welcomes for showing ‘actual movement’ following years of government inaction on the market.

'HMRC isn't responding quickly enough'

“The real problem is that while HMRC have the data, they don’t really have the expertise to actually understand it as quickly as they need to,” Mr Sharp told ContractorUK.

Referring to the umbrella market and it giving rise to tax avoidance schemes, Orca’s CEO also said such a ‘lack of expertise’ explains the need for “consultation after consultation after consultation.” 

“An ex-tax inspector at The Contracting Awards cast quite a [similar] light [to me as he doubted] whether there really is a desire from HMRC to want to truly clear this mess up.” Sharp said.

'Onerous on employment businesses'

A more widely shared concern is than rather clear up the mess, the government’s intention of the 58-page document could be to clear up umbrella companies altogether.

Lawspeed’s Adrian Marlowe said: “Some of the [consultation’s] proposals are so onerous on employment businesses that you have to ask why they would want to work with an umbrella.

“For example if the employment business is to be the deemed employer for tax purposes… a major part of the advantage in working with an umbrella will be lost.”

'Most controversial'

A recruitment lawyer, Mr Marlowe was referring to the third of the consultation’s three options -- to deem agencies the employer for tax purposes and place the responsibility to operate PAYE on agencies.

The consultation’s second option is “the most controversial” however, according to law firm Chartergates -- yet that option similarly puts the future of umbrella companies in doubt.

Of ‘option two’ -- transfer the tax debt from a defaulting umbrella to the employment business (or potentially the end-hirer), the law firm said:

“As well as income tax and National Insurance Contributions, the government is considering whether a VAT liability should also transfer.

“The implications here are very significant for both umbrella companies and employment businesses. The benefit of using an umbrella for an employment business is to remove the administrative burden of they themselves employing/engaging an individual.

“To replace this with what will need to be the deployment of a due diligence operation by employment businesses in order to avoid or mitigate any, potentially, significant tax transfer to themselves, might cause many to abandon dealings with umbrellas altogether.”

'No point in umbrellas anymore'

Mark Thomas, a director of the Ellis Recruitment Group echoed in a LinkedIn post: “[With both] Option 2…and Option 3, in my opinion, there would be no point in umbrellas anymore, as employment businesses may as well just commit to running their payroll.” 

Tania Bowers, of the Association of Professional Staffing Companies sounds like she agrees the burden will be disproportinately placed on recruiters and so isn’t impressed.

“Rather than placing more responsibility on the umbrella industry itself…government are once again seeking to rely on passing legal and tax risk up the supply chain to employment businesses and end hirers.”

'Further uncertainty with debt transfer'

APSCo’s global public policy director, Ms Bowers continued: “We can understand the attractiveness to government of the seemingly simple logic of debt transfer to employment businesses or a further deemed employer regime. 

“However, in the long term, this could create further uncertainty in the UK’s highly regarded and vibrant recruitment and outsourcing sectors, so…we will be working closely with our members to ensure that the voice of the professional staffing sector is brought to the table amid what looks set to be some significant changes to umbrella regulation.”

The association commended the three proposals to tackle umbrella market non-compliance as “ambitious,” but it wants the legislation to “not be to the detriment of employment businesses”.

'Working group'

To ensure the government doesn’t fumble its response to the consultation (open for replies until August 29), some industry captains say a working-group should be set-up.

Not that there appears to be agreement over whose idea such a working-group was.

“I suggested that a working group would be best to work collaboratively for the benefit of the sector,” Contractor Voice’s Jacob Bellas told ContractorUK.

“There is a [already a] roundtable event that JobsAware is hosting this Wednesday, for any contractors that wish to share their views on how to regulate the brolly industry also. I'm happy to feed any contractors’ recommendations into that roundtable also.”

'Our suggestion'

Asked by ContractorUK about the roundtable, Professional Passport said: “We would urge HMRC to take us up on our suggestion to form a working group of experts so that together the industry can move forward for the better and benefit of our sector.”

Pressed on the envisioned group’s workload, Professional Passport’s Crawford Temple said “a lot of work” would be required relating to the consultation proposals on “due diligence and debt transfer.”