Empowering the Freelance Economy

HMRC v. SEB: how can tax grabs from victims first, bad guys later ever be justified?

Photo source: UK Supreme Court.
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The omittance of any remark over the Employment Bill and the Single Enforcement Body in the Queen’s Speech, speaks volumes of “indifference” about how discrimination against freelancers and solo business owners is reaching a fever pitch. Plus, the worrying practice of recruiters inadvertently bulldozing freelancers into umbrella company contracts every day and no one with legal authority is doing a thing about it.

The Queen’s Speech omitted any reference to the Employment Bill/Single Enforcement Body, a much-awaited form of legislation that would not only address unfair and fraudulent working practices in the umbrella company industry, which have emerged from findings gathered by the Government’s Call for Evidence into the Umbrella Industry but the biggest crime of humanity: modern slavery.

Margaret Beels, the Director of Labour Market Enforcement may have initiated a consultation that closes on May 31st calling for evidence on emerging issues around compliance and enforcement in the UK labour market, but that’s only to help guide her enforcement strategy for 2023/24.

HMRC has been calling the shots for so long, that many contractors have no confidence that matters will be fast-tracked or that discrimination against freelancers and contractors will ease in the near future.

James Poyser of inniAccounatnts

James Poyser, CEO inniAccounts says it is “unfathomable” as to why this government has not prioritised the creation of the SEB, and the regulation of the umbrella company industry as well as other “repugnant” practices related to employment rights such as slavery.

“It delivers a brutal message of indifference to hard-working, self-starters from gig economy workers to consultant GPs and private sector contractors,” says Poyser.

“The off-payroll reforms have made the employment supply chain brittle and unfit for purpose at a time when businesses are desperate for less red tape and flexible skill to recover and grow. This has resulted in thousands of workers being forced into the vulnerable situation of being exploited by unscrupulous umbrella companies,” he says.

Why is HMRC dragging its feet about getting the bad guys?

Here’s a word of the day for you: abeyance: noun, “a state of temporary disuse or suspension.”

Abeyance seems to be the state of play for Off-Payroll tax reform in the UK.

“The [Queen’s] speech covered many areas, including plans in relation to levelling up, an Online Safety Bill, a Bill of Rights and a Public Order Bill,” says Katie Russell of law firm Salmon Burges.

“However, notable (again) by its absence was the proposed Employment Bill, first announced in the Queen’s Speech following the General Election in December 2019,” says Russell.

One of the government’s flagship proposals, when the bill was introduced in 2019, was the proposed changes to the right to request flexible working which centered on making this a Day 1 right.

Arguably, says Russell, with the UK seemingly embracing hybrid working voluntarily, the need for reform in that area has, for now at least, dropped away.

“However other proposed rights, many of which are significant for those set to benefit, are once again in abeyance – whether they will progress in time remains to be seen,” she concludes.

But if HMRC has all the data it needs, why does it go after victims rather than the masterminds behind unscrupulous umbrella company practices?

Dave Chaplin, CEO of compliance firm IR35 Shield

“HMRC already garners the data it needs, and just needs to act on it quickly,” says Dave Chaplin, CEO of compliance firm IR35 Shield.

“Unfortunately,” says Chaplin, “despite many experts providing compelling evidence to HMRC when they see wrong-doing, actions by HMRC are slow, which ends up with HMRC chasing the victims for the money, and not the scheme provider,” highlighting the injustice felt by many contractors who have been forced by recruiters and end-clients into inside IR35 roles or swindled into umbrella company tax avoidance schemes.

HMRC already garners the data it needs, and just needs to act on it quickly.

Dave Chaplin, CEO of compliance firm IR35 Shield

Chaplin and others including Crawford Temple, CEO of Professional Passport, found it is disappointing that the Employment Bill will not be making its way through Parliament in the next two years.

However, Chaplin is optimistic that this delay should not prevent the authorities from “cracking down on tax avoidance and evasion that enters the supply chain via agencies working with disreputable umbrella companies.”

PSLs: do contractors really have a choice?

There are no official statistics directly measuring freelancers’ contribution to the economy. It is, however, possible to provide a speculative estimate, according to IPSE.

“If freelancers’ contribution to turnover is proportionate to their presence in the wider group of businesses without employees, their collective sales would be approximately £146bn. That equates to 46% of the £316bn contributed by the UK’s wider solo self-employed workforce,” states an IPSE report.

So, how can a group of individuals contributing this much to the economy be voiceless and repeatedly taken advantage of?

Here’s a current example of how intelligent, skilled and talented freelancers are being undermined and bulldozed. A contractor came to The Freelance Informer to share their experience of being blindsided by an umbrella company that was obviously linked to a recruitment firm they had been talking to about an inside IR35 job, the first one the contractor had ever considered.

The contractor, who wished to remain anonymous, has been a freelancer running their business through a limited company for nearly a decade and has an accountant. The contractor tried to explain to the recruiter that they could handle all their tax affairs with their accountant, but the recruiter said it was inside IR35 or nothing. What happened next was shocking.

In less than 24 hours of having a discussion about the new opportunity, the contractor received a phone call from an umbrella company. The contractor was not given a “preferred” umbrella company supplier list to choose from, nor did she consent to give her details to the umbrella company in the first place, nor did the contractor fill out an umbrella company form.

The initial contact happened by phone and not email, with very little explanation about what it means to be an umbrella company worker other than they’d have to pay a £15 weekly fee and have to foot an apprentice levy tax. The contractor told FI that they were shocked to hear that they would be taxed on mileage even though they would be an employee of the umbrella company.

“So, not only am I paying employee and employer national insurance and having to pay the umbrella company for the privilege of doing it, I now learn that I have to contribute to apprentice tax as well.”

The contractor continued to relay their experience:

“I was told that I had to use this one umbrella company allegedly because of compliance rules. When I asked ‘why’ to the recruitment agent, they said it was because they didn’t want to run X amount of payrolls. So I’m thinking well, ‘why would you be running different payrolls if I am now being asked to go through an umbrella company?’ The initial process has baffled me. It really irks me since I’ve only received an email with a few bullet points from the umbrella and they are already talking about me joining a pension scheme, too.”

Legal loopholes must be closed

It has come to FI’s attention that the umbrella company in question has senior management on the FCSA board, so clearly, the umbrella company’s staff should be aware that such blatant forced sales approaches initiated by the recruiter are questionable, especially since the contractor was not given a choice of other umbrellas to choose from.

Understandably, there is an onboarding process for any new candidate going through a recruitment firm, but for a candidate to get a direct call from a single umbrella company just a day after discussing a role, which the candidate albeit is very keen to take, needs to be addressed.

Why this particular umbrella company? Why sign up for an umbrella contract before the paperwork for the new role is even completed? Kickbacks? Hopefully not, for the sake of the contractor. Let’s hope the recruiter is just keen to get things rolling. However, getting contractors to sign up to an umbrella company in advance of the job paperwork being completed seems amiss.

The loopholes in the law, which allow exploitation in the umbrella industry, desperately “need to be closed and the creation of the SEB would have been a good step towards this,” according to Rebecca Seeley Harris, Chair of the Employment Status Forum.

Seeley Harris says she and others will continue to work with BEIS and the Director of Labour Market Enforcement to ensure that “these vulnerable umbrella company workers get the protection they deserve.”

Seeley believes not all umbrella companies are bad apples. “[We will] ensure that reputable umbrella companies are not disadvantaged by the lack of regulation of the industry as a whole.”

“Even without an employment bill, it is hoped that the government will still look to close the loopholes such as the abuse of the ‘use it or lose it’ holiday pay scams, where the law is woefully behind current employment practices. 

“They need to bring forward legislation as a result of the judgment in the Pimlico Plumbers case in the Supreme Court last year, and we will continue to call for action,” says Seeley Harris.

Does the current state of affairs of the UK’s freelance economy affect you? Share your thoughts in our comments section.

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