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Umbrella market regulation on the agenda
by Susie Hughes at 11:13 18/04/24 (News on Business)
Following the recent Spring Budget, the Government announced it will provide updates on and publish the details of further tax measures during 'Tax Administration and Maintenance Day', which is today (April 18, 2024).
Umbrella market regulation is one of the expected announcements. Matt Fryer, MD of Brookson Group and People2.0 UK shares his thoughts:

Matt Fryer writes:
“Umbrella market regulation has taken the Government far longer than it should have done. The Taylor review of modern working practices made a number of sensible recommendations in 2017 that have still not been acted on.

“Since changes to the off-payroll working rules (IR35) forced hundreds of thousands of contractors to work under PAYE, there has been a proliferation of payment intermediaries entering the market, masquerading as umbrella companies.

“These bad apples have tarnished the reputation of the sector through practices which take advantage of workers, from hidden fees to withholding holiday pay. Although a small number of tax avoidance schemes have been called out and prosecuted by HMRC, non-compliance in the labour market continues. Standards have slipped.

“Workers are now more dubious about handling of their pay, especially if they feel aggrieved about the IR35 status determined for their contract by their end hirer. Many feel misclassified. Once deemed to be inside IR35, they have no choice but to work via an umbrella company.

"They will also receive less take home pay, due to employment tax and national insurance. To be exploited by an unscrupulous, unregulated and unaccredited provider adds insult to injury.

“There is an opportunity here to require the market to only engage with compliant umbrella companies. Whether Government goes with a soft approach, of due diligence perhaps with a fine, or a more drastic approach, involving debt transfer is as yet unknown. We hope to find out this week.”

Responses
Here is a summary of Brookson Group response to UK government umbrella consultation, August 2023

  • We believe that the key element to this phase of the consultation is to agree a commonly accepted definition of an umbrella company which enables them to be easily identified without restricting current and future business structures and without curtailing innovation and evolution of the market. Focusing the definition on the type of business model or payment mechanism may be achievable, however, we believe that applying the regulations to the supply chains/type of workers in which umbrella companies operate may be a more appropriate approach.
  • Once the definition is finalized it then feels appropriate to target the regulations to known areas of confusion, exploitation or compliance failures rather than a broad scope which potentially duplicates or is contrary to other forms of regulation. Any due diligence requirements for the supply chain must be prescriptive and unambiguous to limit the impact on the compliant providers in the market. Should there be uncertainty regarding what is required we will likely see a reduction in the use of umbrella companies and adoption of other models which may be more risky to the Exchequer and to workers.
  • Finally, the penalty regime should encourage due diligence to be carried out but not be overly punitive in instances where non-compliance occurs (but due diligence has been carried out to the required standard). Punitive penalties (such as whole or partial debt transfer) should be reserved for instances of knowing collaboration and sharing of benefits.

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Susie Hughes © Shout99 2024

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