Empowering the Freelance Economy

Umbrella companies to be regulated, but when?

Margaret Beels, Director of Labour Market Enforcement Strategy said: "work closely with the relevant departments to seek to root out non-compliance in this area."
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Labour Market Enforcement Strategy promises umbrella regulation to ‘root out non-compliance. Industry commentators respond to the news and how they still fear a long wait ahead for something concrete to materialise.

Margaret Beels OBE Director of Labour Market Enforcement Strategy has reaffirmed the government’s promise to regulate the umbrella industry, along with introducing the Single Enforcement Body (SEB), the latter of which Grant Schapps recently said would be shelved.

The long-awaited Labour Market Enforcement Strategy 2022/23 has been published, outlining the government’s plan to ensure legislation keeps pace with the evolving employment landscape. 

The strategy document said that the HMRC estimates that the number of individuals working through umbrella companies was at the 500,000 mark in 2020/21. The report said that there have been early indications that IR35 changes may have accelerated this growth.

“The Government has committed to regulating umbrella companies which will be a welcome step towards achieving compliance provided EAS receives the necessary budget to enforce the regulation,” Beels said in the LMES document.

“Taking into consideration the outcomes of the current consultation, I will work closely with the relevant departments to seek to root out non-compliance in this area,” said Beels.

Contractor industry experts respond

Those that have contributed to the government’s consultation on the umbrella company industry, are taking the government’s fresh promises with a pinch of salt.

One such person is Julia Kermode, founder of temp worker lobby outfit, IWORK, who had this to say:

“On one hand, I’m glad this document is finally here. But its publication and its promises don’t gloss over the fact that it’s nearly the end of the period the strategy covers. IWORK, along with many other stakeholders contributed to the consultation, submitted a written response, attended meetings and had our say. 

“I realise the delay in publishing isn’t Margaret Beels’ fault. She has done everything possible to stick with her timeframe but hasn’t been helped by the political chaos. However, it’s very disappointing that the government has deprioritised dealing with problems in the labour market, whilst many people continue to be exploited.”

Westminster has been talking about regulating the umbrella sector for years and made no progress whatsoever. So I can’t help but take fresh promises with a pinch of salt.

Julia Kermode, IWORK

Dave Chaplin, CEO of tax compliance firm IR35 Shield said that self-employed had a very rough deal through Covid due to the lack of support by the Conservatives, and this continued impotence is the antithesis of conservative values.

Dave Chaplin, IR35 Shield: “There are billions of pounds per year flowing through an unregulated sector, so regulation and policing are essential.”

Chaplin feels more needs to be done to trap the unscrupulous players that remain and are joining the unregulated umbrella sector year after year.

“In response to the Government’s plans to tackle tax avoidance, there are billions of pounds per year flowing through an unregulated sector, so regulation and policing are essential,” said Chaplin.

“But the only way to reduce the list of victims of payroll fraud is to implement real-time monitoring of the money flows,” he said.

The only way to reduce the list of victims of payroll fraud is to implement real-time monitoring of the money flows.”

Dave Chaplin, CEO of IR35 Shield

Seb Maley, CEO of IR35 specialist, Qdos, is still concerned that the umbrella industry remains unregulated and disappointed this has been prolonged under a Conservative government.

“The government has acknowledged here that IR35 reform pushed contractors into working via umbrella companies,” said Maley.

“Yet amazingly, this industry is still unregulated. Westminster was adamant that IR35 reform was needed to increase compliance, but we now have half a million people operating in a sector where tax avoidance schemes are commonplace. While there are plenty of fair, transparent and compliant umbrella companies, it’s no secret that regulation is desperately needed,” said Maley.

Fred Dures, founder of specialist payroll auditor, PayePass is remaining positive over the developments and sees the strategy as a “step in the right direction.”

“Promising to regulate the umbrella industry will help flush out tax avoidance schemes and in turn, protect the 500,000 people working through umbrella companies in the UK,” said Dures.

“The Single Enforcement Body is back on the cards, too. It was only months ago that Grant Schapps said it was being shelved. But let’s not get too ahead of ourselves. There are a lot of promises made in this strategy, which we’ve heard before. Plus, a lot of these plans are caveated, based on available budget and parliamentary timescales,” he said.

Will a regulated umbrella industry mean a fair one to contractors? Leave your comments.

2 Comments
  1. Jayne W says

    Talk about putting the cart before the horse. Total lack of strategic thinking and short termism. Taking away the fact that IR35 makes contractors pretend employees but without and rights or benefits of employees, regulation might make it fairer but there needs to be other change to make it fairer as ‘fair’ is a very relative word.

  2. C says

    No it won’t and RI 35 needs to be reviewed and passed back to contractors …. The are still self employed but treated as the were in full time work… this is so wrong

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