Government slammed for “deafening silence” over umbrella industry consultation. The question remains, why has the government dragged its feet for 6 years to regulate the umbrella industry?
14 months after a consultation into the umbrella industry, the government still hasn’t issued its response – despite a 400% increase in umbrella working since 2007/08.
The lack of action leaves over 500,000 people working in an unregulated industry where tax avoidance schemes and financial misconduct are commonplace.
People like Fred Dures, founder of payroll auditor, PayePass, are starting to come to the conclusion that the government’s consultation on the umbrella industry was just “lip service” given it has been over a year since the consultation closed with no response to their own findings.
“The silence is deafening,” says Dures. “It’s time the government took action, which starts by at least responding to its very own consultation imminently. Right now, it just feels like this consultation was launched as lip service. “
Umbrella industry consultation timeline
In November 2021, the government launched a consultation to explore the role of umbrella companies in the labour market amid concerns about tax avoidance and unlawful working practices, which pose a threat to workers and also leave billions uncollected in tax.
The consultation closed in February 2022. However, well over a year later, the government has not issued a response or confirmed when it will publish its findings.
This is despite the significant increase in umbrella working in the UK which, according to HMRC’s own data, grew from around 100,000 workers in 2007/08 to well over 500,000 by the 2020/21 tax year – a 400% increase.
Government is aware of worker exposure to unregulated umbrellas
“The longer the government buries its head in the sand, the more workers there are exposed to tax avoidance schemes,” says Dures. “To make matters worse, these schemes see billions in tax slip through the net – at a time when the economy and public services need it more than ever.”
“The lack of urgency is startling, particularly in a sector where hundreds of billions pass through it every year. The government promised to regulate the umbrella industry in 2017, yet here we are, six years later. It’s anybody’s guess as to what the government plans to do next,” says Dures.
However, it could be argued that certain decision-makers in government are turning a blind eye to the potential injustices of an unregulated industry if it means drawing in more people into PAYE through Off-Payroll rules and away from self-employment at a slightly lower tax rate.
“500,000 umbrella workers is a conservative estimate, too”, says Dures. “Since the roll-out of the off-payroll working rules, it’s widely acknowledged that tens, if not hundreds of thousands of people have started working via umbrella companies.
High-profile IR35 cases are where resources are being directed
With HMRC bringing more high-profile media IR35 cases coming to court, it is becoming clearer that government is not pro-entrepreneur or self-employed. One of the latest examples is the news that former tennis player turned Sky Sports presenter, Barry Cowan, lost his IR35 case after his representatives failed to submit their application to appeal within the 30-day deadline.
Cowan is one of a number of Sky Sports presenters who have been targeted by HMRC regarding their IR35 compliance in recent years, while Gary Lineker recently won his £4.9m tax battle over IR35 status.
The hearing was to consider Cowan’s application to appeal HMRC’s view that the freelance presenter worked in a manner akin to employment and therefore belonged inside IR35 for contracts held from 2014 to 2019.
However, Cowan’s representatives missed HMRC’s deadline to submit an application to appeal, with the court notes stating “serious and significant delay – no good reason”.
Seb Maley, CEO of contractor insurer and IR35 specialist, says, “You have to feel for Barry Cowan. Through no fault of his own, he won’t have the chance to appeal. If recent IR35 cases involving Sky Sports presenters are anything to go by, this huge error could have cost him a fortune.
“Filing an application to appeal is simple stuff – it should be bread and butter for Cowan’s representatives,” says Maley.
He continues, “What’s really worrying is that it’s not the first time we’ve seen this happen. Late last year it emerged that another Sky Sports presenter, Michael Lynagh, had his request to appeal denied because his accountant missed the deadline.
“IR35 cases can carry millions in tax liability and HMRC is noticeably ramping up its compliance activity in this area.”
Does this use of government resources illustrate that the Treasury believes the above example is an easy tax grab and would rather go after the self-employed even if they have a solid case than stamp out non-compliance in the umbrella industry?
If workers from much-needed IT specialists to locum doctors to supply teachers are better protected in a regulated umbrella company industry, taxed fairly, and given benefits in return for their umbrella company fees, what reasoning does the government have to keep its citizens exposed to hidden tax avoidance and salary skimming?