As you may be aware, the Government published a consultation on the regulation of umbrella companies earlier this year, the consultation closed on 29 August 2023.
We were expecting an update from Government in the recent Autumn statement, however, there was no reference to this consultation in the announcement. Whilst this means the proposals to regulate the umbrella market are on hold we have summarised below some key take aways for your consideration.
Timeline for implementation
We understand that both Conservative and Labour parties support the compliant use of umbrella companies within the UK flexible labour market. However, they recognise that there are instances of non-compliance which result in a risk to revenue for the Treasury and an unlevel playing field for compliant providers and their supply chains. We therefore expect regulation to go ahead, however, there does not appear to be sufficient Parliamentary time available to roll out the changes in advance of the General Election expected next year. This means any changes are unlikely to be until the back end of 2024.
What changes might we see?
There are a number of proposals in the consultation but perhaps the most pertinent for you to be aware of is proposed debt transfer of any taxes unpaid by non-compliant umbrella companies which go bust, unable to pay the taxes due. The consultation proposes that this tax debt be transferred to the contracting agency and possibly the end client in cases where inadequate due diligence has been performed on the umbrella company. Whilst we are aware of significant lobbying to prevent this change from happening it does appear to be HMRC’s preferred option as they believe it will stamp out tax non-compliance within umbrella supply chains.
Given the delay in rolling out any new regulations, HMRC has recently published a useful summary of the risks and steps to take to mitigate them when engaging with umbrella companies. The guidance is aimed at employment businesses (recruitment agencies) but can be found here should you wish to review it Responsibilities for employment businesses working with umbrella companies – GOV.UK (www.gov.uk)
What can you do to get ahead of this potential risk?
It is clear that tightening of regulations surrounding umbrella companies is on the horizon and that HMRC’s preferred approach will be to “upstream compliance” and place obligations and risk on supply chains utilising workers employed by umbrella companies. Unfortunately, there is still a proliferation of non-compliant umbrella companies in the market, targeting workers with promises of enhanced tax home pay, funded by tax non-compliance. This risk is eliminated by limiting the use of umbrella companies in your supply chains which can be achieved by using the on payroll direct engagement model provided by Plus Us. This also provides you with VAT savings on the cost of agency supplied locums, thereby contributing to a total cost reduction as well as de-risking you from potential future tax bills.
If you would like further information on the proposed umbrella regulations, please don’t hesitate to get in touch.
