Contractors, be aware HMRC is probing umbrella companies under ‘Test & Learn’
An update we sent to our subscribers raised eyebrows, ContractorUK’s included, for being entitled ‘HMRC commences new wave of umbrella companies,’ and so it even created a few ripples of its own!
But it’s true -- in the ever-evolving landscape of tax compliance, umbrella companies find themselves under the spotlight once again, writes Naseerah Mussa, consultant with employment law firm Chartergates.
A meticulous taxman is reviewing what you wrote (hopefully)
We’ve seen HMRC intensify its efforts to gather information aimed at combating non-compliance within the contractor umbrella sector. While the consultation on umbrella regulation closed on August 29th 2023, there is little doubt that HMRC will be meticulously reviewing the responses received.
Simultaneously, HMRC continues to scrutinise the sector through various means, including identifying umbrella businesses involved in tax avoidance schemes and providing guidance such as Spotlight 60, which underscores the risk of non-compliance on the part of umbrella companies. And more recently, tax avoidance schemes and those promoters masquerading as genuine umbrella companies are being added to a publicly issued webpage which currently contains around 60 entries.
‘Umbrella Test & Learn’: now unsettling an umbrella company near you
The government's intention is crystal clear. They are determined to ‘level the playing field’ and eliminate non-compliance in the labour supply sector. While the proposals from the consultation may eventually help regulate the sector, HMRC is taking immediate action to maintain pressure.
Umbrella businesses are now receiving special attention and are openly targeted for a new wave of HMRC Employer Compliance Reviews (ECR) under an initiative called ‘Umbrella Test & Learn,’ so we understand.
Overall, it is safe to say that this ‘test & learn’ project is another example of the government’s commitment to preventing tax evasion and protecting the rights of workers. These reviews by the Revenue might very well pose some challenges for certain umbrella companies, but those who are diligent in maintaining compliance with the law should have little to fear, should an HMRC inspector call in relation to a ‘test and learn.’
Lastly, is that regulation boil going to get lanced next month? Probably not…
As Autumn Statement 2023 fast-approaches on November 22nd, there is much debate as to whether the government will address the issues relating to non-compliance in the umbrella sector.
It is likely that the government will clamp down further on tax evasion and avoidance and perhaps more aggressively. So perhaps ‘Test & Learn’ is a sign of things to come. However, given the current fiscal challenges that the government is facing -- as well as a general election inching closer, it is unlikely that we will see any significant announcements, even if we are all wating for the umbrella regulation boil to be lanced.