Tackling Non-Compliance in the Umbrella Company Market

The government’s latest consultation. Is your labour supply chain compliant?

Will end clients and employment businesses be liable for unpaid PAYE tax? The government recently released its consultation following the call for evidence in 2022, gathering opinions from stakeholders within the umbrella market. The consultation (link here) covers numerous areas which following this period of consultation, aims to tackle non-compliance in the umbrella market.

The key points

In this consultation, the government has a number of objectives;

• Improved outcomes for workers
• A level playing field in the umbrella company market
• Protection of taxpayers from the revenue loss from non compliance

Although still a consultation, the government has a number of proposals in order to regulate better and reduce non compliance. Firstly establishing a legal definition of Umbrella Company, so regulation can be applied in the right places. The next proposal outlined is a mandatory process of due diligence with penalties for employment businesses and end-clients who don’t comply. This puts compliance throughout the supply chain.

Next up they outline powers to deduct tax from within the labour supply chain and not just via the umbrella, focusing on income tax and NI contributions that should have been collected via PAYE but a non-compliant umbrella may not have. This promotes the supply chain to be selective in choice of a compliant umbrella. The third present optioned is making the deemed employer to be ultimately responsible for deduct of the correct PAYE tax.

What does this mean for our clients? It’s still unclear, however it’s looking likely that ignoring how your workers are paid could mean tax liability and increased administrative burden.

Our view

After over a decade of navigating umbrella companies, we’ve become a fan of compliance. We believe that all the supply chain should be responsible for ensuring workers are paid correctly, and if legislation enables that then it will be supported by us. However, with some of these proposals it means increased administrative burden and complications, so we’d like to see it not complicate things for clients and workers.

What does this mean for end hirers and employment businesses?

If these changes were to happen, it would mean more exposure to risk if engaging with non-compliant umbrellas, and potential of debt transfer.  We still have months to go before further updates and changes, but we’re here to support our clients and candidates through the changes as always.

For more information on contractor compliance, follow this link: Hiring Contractors (owendaniels.co.uk)