Two leading industry figures have put forward a policy proposal for Chancellor of the Exchequer Rishi Sunak, reasoning that tough new rules must be imposed on dishonest umbrella company bosses to prevent them from cheating tax authorities and workers out of billions of pounds a year.
Rebecca Seeley Harris, Chair of the Employment Status Forum, and James Poyser, who founded offpayroll.org.uk, have presented the Treasury and the Department for Business, Energy and Industrial Strategy with a draft policy entitled ‘Umbrella companies – Call for Regulation’.
In this document, the two industry professionals suggest that regulation should be introduced to guard against such practices as the withholding of holiday pay, the abuse of employment allowance tax-relief, and the incorrect payment of employers’ national insurance contributions (NICs).
The report stated an estimated annual cost to staff and the taxman of £1 billion as a result of the use of tax avoidance schemes, including the use of so-called ‘mini umbrellas companies’.
“This market needs urgent intervention and regulation”
Ms Seeley Harris said the proposals would not only uphold workers’ rights and prevent tax evasion, but would also protect the reputation of law-abiding umbrella companies.
She commented: “It is paramount that the regulation of this industry is expedited because of the rise in the use of umbrella companies as a result of both the coronavirus pandemic and the off-payroll working rules forcing people through non-compliant umbrellas.”
Meanwhile, Mr Poyser warned the government against complacency on the issue, stating: “The breadth and scale of the stories of malpractice, scams and skimming are distressing and deplorable.”
He continued: “We have witnessed payslips that don’t reconcile, deductions taken from workers but not paid to HMRC, holiday pay being unfairly pocketed, workers forced to use a single umbrella company with artificially inflated fees and agree to ‘opt-out’ of worker protections. These practices are prolific, including among the most well-known ‘accredited’ umbrella companies.
“Any layperson who lifted the lid on the industry would quickly conclude that this market needs urgent intervention and regulation.”
The Government defends its stance
The policy proposal includes the urgent appointment by Government of a director of labour market enforcement to provide strategic direction.
However, a Government spokesperson said: “Protecting and enhancing workers’ rights through robust regulation – including for those employed by umbrella companies – is a priority for this Government.
“We have already introduced requirements to improve the information provided to new agency workers about their contractual terms and pay rates, and have committed to establishing a single enforcement body to further protect vulnerable workers.”
The spokesperson added: “We have updated guidance on mini umbrellas companies (MUCs) fraud, published on 10 May, on GOV.UK and will be sharing with stakeholders and advocates, and we will continue to work with trade bodies and other government departments to raise awareness of MUC fraud.”
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