Government updates umbrella company regulation backers -- with just three paragraphs

Three paragraphs is the total sum of the government’s much-anticipated update on umbrella company regulation.

It represents a big blow to contractors, as Spring Budget 2024 promised them officials would “provide an update” on April 18 2024.


This update, on Tax Administration & Maintenance day, was vowed in relation to a “recent” consultation on brolly non-compliance.

But despite officials’ wording, the call for industry views which led to the consultation was sounded two years and four months ago.

To now get just three paragraphs since the Nov 2021 call, and the June 2023 consultation, is “underwhelming and disappointing” says Professional Passport.

Worse, the reply does “not inspire confidence that a clear, decisive plan will be presented any time soon,” the compliance organisation fears.

'Just three paragraphs'

An umbrella company, Clarity, sounds insulted by the reply’s brevity. 

Clarity’s managing director Lucy Smith told ContractorUK:

“The first response we’ve got to the umbrella regulation consultation consisted this morning of three paragraphs. Just three paragraphs.

“And based on what the government says in those paragraphs, we have to sit in wait. Again. It’s another anti-climax for the industry.”

'Kicked into the long grass again'

Rocket Paye, another umbrella company, is similarly at a loss.

“We’ve all been waiting with bated breath for the…[government’s] promised update on tackling non-compliance in the umbrella sector.

“But what we’ve received is massively disappointing,” John Bounds, a director at Rocket Paye told ContractorUK.

“[Regulation] seems to have been kicked into the long grass again. We were hoping for a lot more than just another ‘wait and see.’”

“We wanted, and are still waiting on clear guidance on what makes a compliant umbrella, so our partners can see we’re fully compliant.”

Instead, Rocket Paye, Clarity and Professional Passport -- and the droves of contractors they support, were told today only that “the government remains concerned about the scale of non-compliance in the umbrella company market.”

'Detrimental impact'

Paragraph one from the government, after acknowledging the “detrimental impact that this has on workers, taxpayers and the labour market,” continues:

“Last summer, the government consulted on options to reduce tax non-compliance in the market and will publish a response to its consultation in due course.”

Sebastian Sauca, CEO of SafeRec, told ContractorUK it will be “hard for a lot of people” not to feel let down by “this short update.”

'Kick in the teeth'

Matt Fryer of Brookson, which provides an umbrella company solution, echoed: “[This] update on umbrella market regulation is very disappointing.

“Eight months have passed since the [June] consultation closed in August 2023 and HMRC are no further forward.

“This is a kick in the teeth for compliant umbrellas, who continue to operate in a market rife with non-compliant providers.”

Translating the first paragraph of the government update for contractors, a clearly annoyed Smith, of Clarity Umbrella offered:

“In summary government is saying ‘we’re aware of non-compliance; have been for years, we want to do something but need more time.’”

'HMRC will publish new guidance'

Action is committed to, however, in paragraph two of ‘Tackling Non-Compliance in the Umbrella Companies Market.'

In the second paragraph of the section, in the government’s Tax and Administration Maintenance policy paper, HMRC states: “To support workers and businesses that use umbrella companies, HMRC will publish new guidance later this year.”

However, such a publication commitment was already known, as at Spring Budget 2024 HM Treasury pledged:

“In summer 2024 the government will also publish new guidance to support workers and other businesses who use umbrella companies.”

'Online pay checking tool'

More positively, paragraph two of today’s umbrella company regulation update reveals that the new guidance will include a new HMRC tool.

Described as an “online pay checking tool,” the HMRC widget will “help umbrella company workers…check whether the correct deductions are being made from their pay.”

But Crawford Temple, Professional Passport’s chief executive isn’t impressed.

“An online pay checking tool….requires people to use it,” he observed.

“So once again the government is not taking the necessary responsible steps to stamping out avoidance.

“[It is] simply passing the onus onto workers and the supply chain in a typically hands-off approach.” 

'Pushes the responsibility'

Brookson’s Mr Fryer agrees. “The introduction of an online pay checking tool window-dresses the real problem.

“Rather than addressing the root cause, it pushes the responsibility for checking if an umbrella company is compliant onto the worker," he said, adding:

“While this gives workers better visibility of their pay, it’s unfair for them to have to undertake their own compliance checks to challenge the actions of unscrupulous, unregulated and unaccredited providers.”

But there’s a further push of responsibility incoming and to another party – recruitment agencies – as the government makes clear in its third and final paragraph:

“The government is minded to introduce a due diligence requirement to drive out bad actors from labour supply chains,” it says.

The statement is the most significant part of the three-paragraph response, as it strongly indicates that the government might no longer pursue the consultation’s other two regulatory options (transfer of tax debt, and preventing umbrellas handling gross funds).

'Due diligence requirement requires a manual'

It also strongly indicates that recruiters -- the party identified in the consultation to carry out the due diligence of brollies they engage -- will be the means to regulation.

The due diligence option was said to be of “definite interest” to HMRC officials at a roundtable back in August 2023, but it was also said agencies would need a “manual” to know what standards, activities and conduct to look out for.

Paragraph three of the government’s umbrella regulation update continues: “To this end it [government] will continue to engage with the recruitment industry and other key stakeholders on the detail of a statutory due diligence regime for businesses that use umbrella companies, and ensure it has the best understanding of the impacts that this could have on reducing non-compliance.”

'Precarious position'

Contractor body IPSE today says it supports the idea of a due diligence requirement, but it warns that a lack of parliamentary time before an election puts the plan in a “precarious position.”

“It’s great that government is minded to do something about non-compliance in the umbrella company sector,” begins IPSE’s policy director Andy Chamberlain.

“Contractors want to see a regulated umbrella sector, and we’re ready to work with government to chalk up how a due diligence requirement could work. 

“But we need some urgency from government. It’s been almost a year since it began consulting on the proposals – ones that should have been in place before the off-payroll working rules. With an election on the horizon, the plans are in a precarious position and risk being delayed even further.” 

'Recruitment industry will have to rethink'

SafeRec’s Mr Sauca reflected to ContractorUK: “The government announcement that they will be looking at a due diligence requirement is clearly showing the intent to get recruitment agencies and supply chains to understand more [about] the umbrella companies they work with.

“No doubt the recruitment industry will have to rethink how they review their umbrella companies, and that just receiving a pre-made compliance folder from umbrella companies won’t be enough anymore.”

But it is the due diligence requirement itself which Professional Passport fears won’t be enough.

"Whilst the government says it is minded to introduce a due diligence requirement to drive out the bad actors from the supply chain, I would like to suggest that in an unregulated environment, the bad actors will simply find a way to skirt around their tax obligations,” the compliance organisation said. 

'Due diligence requirement needed now, not later'

More optimistic is Brookson’s Mr Fryer.

“The due diligence requirement for umbrella companies will go some way to reducing non-compliance.

“But it’s needed now – not later this year. In the meantime, bad actors continue to tarnish the reputation of the sector through practices which take advantage of workers, from hiding fees to withholding holiday pay.”

In a statement to ContractorUK, Brookson’s managing director continued:  “As non-compliance remains rife in the umbrella company market, the government needs to act swiftly and introduce due diligence requirements. We urge the government to engage with the industry now to ensure the guidance is not delayed any longer.”

A spokesman for HMRC (which authored today’s Tax and Maintenance Policy Paper and is one of three departments behind the umbrella company regulation consultation), has been invited to comment -- on the delay, the only three-paragraph response, and its preferred timing for a fuller government response.

Profile picture for user Simon Moore

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.
Printer Friendly, PDF & Email

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required