IR35: Government set to tackle ‘murky’ umbrella company market

UK lawmakers have outlined a range of proposals to tighten policing of the fraught umbrella company industry following a public call for evidence launched more than 18 months ago.

Alongside a 54-page summary of the responses to the call for evidence, the government has unveiled a fresh consultation into tackling-non compliance in the marketplace.

Its proposals include: new ways to define umbrella companies; mandating proper due diligence regarding compliance; suggested implementing of the transfer of debt up the supply chain; regulating umbrella companies for employment rights and tackling tax non-compliance in the contingent labour market.

The consultation document also outlined three “main objectives” for the umbrella company market: to deliver improved outcomes for workers; to support a level playing field in the umbrella company market; and to protect taxpayers from revenue losses.

“Together, these will enable both people and businesses to succeed in the labour market, supporting economic growth and ensuring everybody feels its benefits,” the document’s executive summary reads.

Mixed industry reaction

But in spite of the industry’s lengthy wait for progress, varying levels of optimism have been expressed by market participants.

Julia Kermode, CEO of umbrella company compliance specialist PayePass, for instance, argues that proposals are a “mixed bag” and don’t “actually resolve any immediate concerns”.

While measures such as mandating proper due diligence and holding the supply chain accountable are “valid”, some of the proposals threaten how the wider recruitment sector operates, she said.

“It’s taken a year and a half for the government to publish this response, which doesn’t actually resolve any immediate concerns. There are plenty of recommendations being put forward, but very little action. The reality is, the longer that the government sits on its hands, the more problems it creates.”

But for Dave Chaplin, CEO of ContractorCalculator, the government has proven that it is “stepping in to clean up an industry that harbours a murky side”.

“The consultation document suggests that a behavioural effect to policing will be used, whereby clients and agencies in the supply chain will be saddled with liability if the umbrella fails to process payments correctly. That’s a sensible idea.”

However, Chaplin went on to add that “it doesn’t matter how big HMRC makes the stick if they never whack anyone with it”.

This is echoed by Crawford Temple, CEO and founder of compliance assessor Professional Passport. While acknowledging that the government’s fresh consultation is “encouraging and positive”, he argues that “there is a lot of work to be done” for the proposals to have the necessary impact.

“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,” he said.

‘Startling’ lack of urgency

The government’s original call for evidence document, published in November 2021, reported a five-fold uptick in the number of contractors working through umbrella companies since the 2007-08 tax year, further highlighting the urgent need for regulation in the area.

But in spite of this, a lengthy wait for progress followed, with lawmakers failing to provide an update on its findings for a further 18 months despite the consultation concluding in February 2022.

This sparked frustration among industry participants, with PayePass founder Fred Dures arguing that “the silence is deafening”.

“Right now, it just feels like this consultation was launched as lip service,” he said in April earlier this year.

“The lack of urgency is startling. The longer the government buries its head in the sand. The more workers there are exposed to avoidance schemes.”

The government’s newly launched consultation, entitled Tackling non-compliance in the umbrella company market, is due to run until August 29^th, 2023.