Nobody’s off our Christmas card list, except those umbrellas determined to make ‘due diligence’ a mockery of a requirement

Last month, we were one of a number of stakeholders called into government prior to Tax Administration and Maintenance Day, writes Kate Shoesmith, deputy CEO of the REC (Recruitment & Employment Confederation.)

Years of back-and-forth

We were called in to discuss potential next steps following the government’s most recent umbrella company consultation, which had followed an earlier call for evidence and, in truth, years of back-and-forth conversations on what to do about umbrella company compliance.  

Roll forward to TAM Day on April 18th, and the key announcement was quite simple:

The government is minded to introduce a statutory due diligence regime for businesses that use umbrella companies and will continue to engage with the recruitment industry and other key stakeholders on the details of this. 

As we have said many times now, and we repeated directly to the-powers-that-be in our latest meetings both before and since TAM Day, this may be one step forward on umbrellas -- but it certainly does not cover all bases. 

Good will to all, including those pinning their hopes on ‘due diligence’

  It doesn’t mean due diligence isn’t important. So Matt Collingwood, boss of VIQU – you remain firmly on our Christmas card list despite your fears!

But can a single requirement for ‘due diligence’ go anywhere near far enough, fast enough, given the years we’ve been waiting for action? We remain sceptical that due diligence alone can succeed in holding to account those umbrella companies and service users that just don’t operate in a compliant manner. 

This doesn’t mean that we shouldn’t keep promoting due diligence. Our key message for REC members over many years now has been to follow best-practice checks when working with umbrellas, and to conduct their own additional ‘due diligence’ every time.

How the REC already doubles down on due diligence of umbrellas by our recruiter members

We provide advice, guidance, model terms, even a checklist to help agencies with this. We have emphasised the importance of getting all the information needed for Key Information Documents (KIDs) and making sure they are made available to every worker on every assignment, regardless of who is ultimately responsible for this.

And I’d say our members ‘get it,’ unquestionably.  

But issues can arise, despite these best efforts.

Determined, dynamic and evolving

Even HMRC struggles to deal with overseeing umbrella operations as they morph into something else, despite the department’s years of experience and expertise in payroll and tax. This is partly because they are dealing with an umbrella market that is determined and dynamic, evidenced by the evolution of Mini-Umbrella Companies.

Our red line is that umbrella companies should be the ones liable for their non-payment of tax, including via pay made to individual work seekers, and umbrellas should be liable for those they employ.

An outrage

It is outrageous to suggest anyone else should be responsible to police or pay for an umbrella company’s failings.

And expecting recruiters to do tax inspectors’ work is a slippery slope, rather than a realistic means to get a grip of the problem.

So, after TAM Day, the overriding emotion is one of frustration. Yes, recruiters need to be held accountable for bad practice – that’s why the REC are advocates for best-practice in compliance and why we support good regulation (and crucially, enforcement). It’s about time some of that good regulation was applied to payroll providers in the same way. 

Any quick-wins? Absolutely

This begs the question – ‘What can we do, feasibly and immediately?’ 

Well, introducing new legislation is tough in the current parliamentary timetable - but there are other paths forward.

For instance, let’s take the tried and tested definition of 'temporary work agency' contained within the Agency Worker Regulations 2010, and apply this to umbrella company operations in other regulatory vehicles, just as it is under AWR. Then the appropriate enforcement bodies can hold umbrellas to account. In a fast-moving sector, the fact that this definition still stands up indicates why we should adopt it more widely. 

Secondly, government could better resource both the Employment Agency Standards Inspectorate (EAS) and HMRC to tackle non-compliance by umbrellas.

Where the taxman should step in, and up

When aggressive market campaigns aimed at work-seekers show take-home pay rates that are only achievable through tax avoidance at best, HMRC should investigate.

Where there is manipulation of employment status, close collaboration with Department for Business and Trade (DBT), as the sponsoring department for EAS, should come in to protect the worker.    

Final thought

We don’t do handwashing of problems at REC; we want to help government with the nitty gritty of policy formation. So, we will keep on making the case on behalf our members, so they don’t end up having to pay back the tax that some other operator evaded, and so they can get on with the job of helping people into work and bringing growth back to the economy.

Profile picture for user Kate Shoesmith

Written by Kate Shoesmith

Kate has been with the Recruitment & Employment Confederation (REC), the UK professional body for recruitment, since March 2013. The REC sets standards for UK recruiters and provides research insights and thought leadership on the labour market.

At the REC, Kate is responsible for campaigns & our work with government, plus our marketing, digital, comms and research teams.

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