Chancellor Rishi Sunak has drawn criticism from the UK’s freelance and contractor sector due to the recent Autumn Budget’s failure to address the issue of umbrella company non-compliance. Despite growing concerns over the conduct of some umbrella companies, no measures were announced in relation to the subject in the Budget.
The introduction of IR35 rules for private sector organisations in April this year has seen contractor usage of umbrella companies increase rapidly. Contractors have been drawn to umbrella companies as they seek to ensure that their work doesn’t fall within the scope of IR35 rules, something which could have a significant impact on their income, and as a result of many companies adopting blanket policies of only engaging umbrella company contractors.
Despite many umbrella companies being compliant and accredited, recent months have seen a growing number of stories relating to non-compliance, prompting fears that the introduction of IR35 rules has attracted many non-compliant operators into the market due to higher demand.
TaxAid said earlier this year that inquiries about umbrella companies had risen by 37 per cent, with many contractors getting in touch having not known they were engaged with a non-compliant umbrella company until they were contacted over the issue by HMRC.
Non-compliant umbrella companies operate as tax avoidance schemes and will seek to attract contractors through promises such as higher take-home pay. These companies do not pay the correct tax contributions due to HMRC, putting many unwitting contractors at risk of a large bill for unpaid tax or even HMRC litigation.
However, despite widespread calls from prominent bodies in the contracting sector for greater regulation of umbrella companies and initiatives to stamp out non-compliance, such measures were not forthcoming in the Autumn Budget.
This led Phil Pluck, Chief Executive of the Freelancer and Contractor Service Association (FCSA), the body which accredits UK umbrella companies, to assert that the Chancellor had “missed an opportunity”.
