As part of plans to tackle umbrella company non-compliance, HMRC has launched a consultation calling for evidence on umbrella companies. The move has come amid mounting concerns over some umbrella companies avoiding taxes and breaching worker’s rights. Submissions to the consultation can be made up until February 22 2022.
Umbrella companies, which serve as intermediaries between employers, recruitment agencies and self-employed workers, are largely unregulated. Since the introduction of IR35 rules in April, umbrella company usage has increased, as have concerns regarding how some operate, and HMRC has taken the view that they represent a tax risk.
The consultation has been launched with the intention of helping HMRC develop a “detailed and up-to-date understanding of the market and how it is continuing to evolve”. In a document on the consultation, the government has said it “recognises the concerns expressed by parliamentarians and other stakeholders about the risks that abuse of the umbrella company model can pose both to workers and to taxpayers.”
The document goes on to say that HMRC is “aware of concerns regarding non-compliance with employment law, including umbrella companies failing to provide employment rights such as holiday pay, and poor market practises, for example, a lack of transparency over pay rates, fees and charges”.
It adds: “This call for evidence is intended to complement the government’s commitment to bring umbrella companies into scope for labour market enforcement,”
Andy Chamberlain, Director of Policy at the IPSE (Association of Independent Professionals and the Self-Employed), said that, after long calling for better regulation of umbrella companies, the IPSE welcomed “HMRC’s renewed focus on this area.”
Chamberlain added: “Lack of regulation has caused a wild west, with there being well documented problems around the use of tax avoidance schemes. Any potential reforms from HMRC following the call for evidence will be long overdue and much needed in order to instil confidence around the use of umbrella companies by self-employed workers and businesses.”
