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Umbrella industry left unregulated for another year

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Freelancers left frustrated by latest government inaction over umbrella company tax avoidance protections

Freelancers forced to work through umbrella companies were left disappointed today after the government’s announcement on tackling tax avoidance within the industry. Industry experts question why the taxmen have decided to kick the can instead of doing what they can.


There’s the old saying: A mistake made more than once is a decision. That’s likely how most freelancers feel about HMRC’s continued “concern” yet lack of action about the “scale of non-compliance” in the umbrella company market. Even the government says non-compliance by umbrella companies has a “detrimental impact on workers, taxpayers and the labour market.” Yet here we are in April 2024 still waiting for HMRC to “consult, engage…”, etc. rather than use its arsenal of data to get the bad guys before they ruin the lives of workers forced to work through them. But why bother and waste civil servants’ time going after the tricky offshore accounts when contractors can take the fall, right?

If you note some cynicism in the previous passage, you’d be right. That cynicism emanates from reams of LinkedIn posts, replies and comments from umbrella company contractors who feel they are unnecessarily being put in a precarious position, despite being PAYE workers but having to work through an unregulated industry. It also spurs from the contractor supply chain – the legitimate payroll and umbrella companies alongside recruitment firms – that are fed up with being tainted by the dodgy acts of certain umbrella outfits. Outfits that can appear and disappear and not get caught.

What does HMRC say its going to do to protect contractors?

Last summer, the government consulted on options to reduce tax non-compliance in the market and has said it will publish a response to its consultation in due course. That was nearly a year ago.

Again, HMRC said it will publish new guidance later this year, including an online pay-checking tool to help umbrella company workers check whether the correct deductions are being made from their pay. If they are taxed as PAYE, why are they responsible and left on the hook and not the umbrella companies?

The government stated it is “minded” to introduce a due diligence requirement to drive out bad actors from labour supply chains. To this end, it said in a statement on 18 April 2024, that it will “continue to engage with the recruitment industry and other key stakeholders on the detail of a statutory due diligence regime for businesses that use umbrella companies, and ensure it has the best understanding of the impacts that this could have on reducing non-compliance.”

Is HMRC taking the easy rather than right route to justice?

Industry leaders reacted strongly to the lack of concrete action, criticising the government’s “hands-off approach” and “kicking the can down the road.”

Crawford Temple, CEO of Professional Passport, expressed his disappointment: “The industry desperately needs a clear plan, but the government has offered nothing but delays and inaction. This allows criminal operators to flourish with little consequence.”

Temple pointed out the inadequacy of the proposed online pay-checking tool, stating it places the responsibility on already burdened workers and businesses.

Dave Chaplin, CEO of ContractorCalculator, echoed these concerns, calling the announcement a “big fat nothing burger.” He emphasized the need for proactive enforcement, highlighting the existing capabilities of HMRC to track down perpetrators.

HMRC could be “catching criminals in real-time”

HMRC has all the data,” Chaplin stated. “They should be catching criminals in real-time, not publishing calculators.”

Both Temple and Chaplin criticised the government’s lack of urgency in addressing a growing problem. The “ever-growing HMRC name and shame list” of non-compliant umbrella companies, they argue, demonstrates the need for immediate action.

Freelancers facing the complexities of umbrella companies are left frustrated. The government’s announcement offers little reassurance, with many fearing they will continue to be “victims” of a system riddled with tax avoidance.

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