UK government proposes legislation to regulate umbrella companies
- Reference: 1686141185
- News link: https://www.theregister.co.uk/2023/06/07/uk_umbrella_company_legislation/
- Source link:
Both proposals are in their early stages as politicians consider their options in response to allegations of sharp practices among umbrella companies, which have become necessary among some of the IT workforce looking for an alternative to off-payroll working following the introduction of IR35, the controversial tax reform for those working as contractors.
In a consultation paper launched this week, the government admitted that umbrella companies were essentially unregulated.
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Umbrella companies take responsibility for paying contractors and casual workers from employers and agencies, but they are also responsible for ensuring workers get holiday pay, sick pay and pensions in accordance with employment law. In 2021, [2]The Register reported that some umbrella companies were failing to pass on holiday pay or siphoning off pay with hidden fees.
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"Chapter 3 sets out the options the government is considering to address employment rights issues within the umbrella company market such as pay, or holiday pay, being withheld," said the consultation [5]paper published jointly this morning by the Treasury, His Majesty's Revenue & Customs, and Department for Business, Energy & Industrial Strategy.
[6]IR35 costs UK Research and Innovation £36M – the same it spent funding tech projects
[7]Tech contractor who uses an umbrella company? UK tax is coming after them
[8]Too bad, contractors: UK government reverses decision to axe IR35 tax reform
[9]Good news for UK tech contractors as govt repeals IR35 tax rules
However, before it moves to regulate umbrella companies, the government would need define them, firstly using primary legislation and giving ministers the powers to make regulations containing requirements for umbrella companies. Then it would need to consult after the definition had become law on the specific requirements to be placed on umbrella companies before implementing them, the document said.
In its [10]summary of industry consultation [PDF], the government said 95 percent of those working for umbrella companies had no option if they wanted to take a particular role.
"A number of workers explained that they had previously worked through [personal service companies] but that end clients had moved away from engaging people in this way, citing the reforms to the off-payroll (IR35) working rules, and would only offer roles through umbrella companies," it said.
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Julia Kermode, CEO of umbrella company compliance specialist PayePass, said the government's proposals were "a mixed bag."
"There are some valid proposals, like ensuring proper due diligence is carried out on umbrella companies and holding the supply chain accountable if they fail to do so. But at the same time, the government is putting forward ideas which need real work and threaten how the wider recruitment sector operates," she said. ®
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[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZICpoVHhfiHNUD2rZ4djOgAAARE&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://www.theregister.com/2021/05/17/campaigns_umbrella_firms/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZICpoVHhfiHNUD2rZ4djOgAAARE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZICpoVHhfiHNUD2rZ4djOgAAARE&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1161120/230411_Umbrellas_condoc_HMT_template.pdf
[6] https://www.theregister.com/2023/05/26/ukri_ir35_bill/
[7] https://www.theregister.com/2022/12/05/hmrc/
[8] https://www.theregister.com/2022/10/17/uk_government_reverses_ir35_decision/
[9] https://www.theregister.com/2022/09/23/uk_government_to_repeal_ir35/
[10] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1161119/M4027_Call_for_Evidence_SoR_UCs_0103.pdf
[11] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZICpoVHhfiHNUD2rZ4djOgAAARE&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[12] https://whitepapers.theregister.com/
Some of them are real parasols.
Very shady
Umbrella Companies
And here was me thinking that the main problem was when they start doing dodgy research and end up accidentally causing the zombie apocalypse
Re: Umbrella Companies
That is only after they become incorporated.
Government creates red tape to fix IR35 mess of its own creation.
Don’t you love the Tories; endless talk about doing away with red tape, yet doing a remarkable job of creating problems where their solution is more red tape.
Re: Government creates red tape to fix IR35 mess of its own creation.
Sorting out the tax system to make all forms of paid work equal, thereby rendering IR35 obsolete, would be the better way to do things.
Then the umbrella companies disappear automatically, as they would serve no purpose.
Re: Government creates red tape to fix IR35 mess of its own creation.
Beat me to it and put it much more succinctly than I was about to.
Re: Government creates red tape to fix IR35 mess of its own creation.
I’m no fan of the tories that have buggered up so much over the last however-many years.
However, remember that it was Blair’s government that introduced IR35 back in the day
So they are all equally culpable
Ho hum
"This sticking plaster is wholly inadequate!"
"That's OK, I've got a larger sticking plaster to stick over it!"
(12 months later)
"What do you mean, gangrene?"
Sort out the mess that is IR-35 (and it is a mess), *then* you can start talking about regulating the rest of the industry.
"Sort out the mess that is IR-35"
The principle that a company is s special case and can be presumed to act fraudulently solely because its directors actually deliver the chargeable service is fundamentally flawed. The following assumption that all revenue is automatically personal income is entirely unjustifiable. Thus the entire basis for IR35 is unsound and it should never have been implemented. The proper approach would have been to pursue individual cases of tax fraud where identified, leaving all the honest contractors to manage their own affairs.
Prior to IR35 I for one aimed to reserve some contracting revenue in the company to support non-profit activities such as FOSS development, but that ceased to be economic once all revenue would be taxed at personal rates at source.
The net outcome of this daft legislation has been to severely hamper the contracting market, to drive many contractors out of business, to completely kill the possibility of corporate growth for small contracting businesses, and to create massive opportunities for fraud on the part of "umbrella" companies (hence this pathetically late proposed shake up).
Full marks to successive governments for performing as normal to the detriment of the populace and the economy at large.
I worked as a "contractor" for several years pre-IR35. The large company I worked at had a number of *contractors* who had sat in the same office doing the same job for over 20 years. Basically the company was getting employees on the cheap, not paying Income Tax or pension contributions, no sickness benefits and the contractor was on 1 week notice - no redundancy protection.
Umbrella companies were set up to work the system and, from experience, are legally borderline in terms of protecting their clients.
I don't like IR35, but let's be brutally honest, we should and would not need it if companies dealt with *contractors* who are really employees in an honest manner i.e. employing them on proper contracts with benefits, pension entitlement etc.
Like a lot of legislation, it doesn't solve the problem, just batters the little guy even more. Ultimately, it will end up forcing contract rates up. The counter argument being that it restricts employer flexibility to respond. But let's be equally honest, both companies and contractors are complicit to some degree.
I didn't realise making umbrellas was so unregulated.