The Rec explains that an umbrella company is a business sometimes used by recruitment agencies to pay temporary workers, often at the behest of clients or workers. The world of work is changing, yet the Government has been slow to regulate umbrellas despite years of pleas from REC and other labour market stakeholders. Although a consultation has concluded on the issue, there is still no clarity if and when any regulation would become law. On top of that, REC claims that the consultation is misguided in some of its attempts to maintain tax compliance around umbrella practices.
The REC responded to the consultation in which the Treasury suggested ways to lessen tax non-compliance such as fraud and disguised remuneration by umbrellas. Among the suggestions is transferring an umbrella company’s payroll tax debt to employment businesses if the debt is uncollectable from the umbrella. The Treasury is even considering widening this proposed policy to include non-employment taxes such as VAT.
Kate Shoesmith from REC said: “Employment businesses should report obvious or suspected tax avoidance to protect temporary workers, themselves and ensure tax is paid. But it is grossly unfair for recruiters to shoulder liability for another company in their supply chain over which they have no control. That is near unheard of in business.
“Unethical umbrellas can open and close overnight, which under this proposal risks leaving employment businesses to try and survive after taking a big and unexpected tax hit.
“There is also the broader risk that exposing compliant businesses to additional tax risks when engaging with an umbrella undermines the UK's world-class flexible labour market at a time when organisations are relying on temps to get through the economic downturn.
“The alarming thing is that it looks like a quick fix – but it will put employment businesses in quicksand. We really want the government to act more broadly, by widening the scope of current regulations to include all employment intermediaries, including umbrellas, and then enforce them.
“If HMRC is just after a quick fix, they should take simple proactive action such as more cross-referencing of Real-Time Information (RTI) and intermediaries' reports. This could have a significant impact on curbing tax non-compliance. HMRC should also consider reviewing the VAT flat rate scheme and the employment allowance scheme to stop any misuse.”
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