The latest government consultation, ending on 29th August 2023, has advised on new changes to tackle tax non-compliance in the umbrella sector. Today, we take a closer look at the impact this will have on the umbrella company market and employment businesses, and how new legislation could help to transform employment rights.
What are Umbrella Companies?
Before discussing the governments bid to adopt a new approach into the umbrella market, it’s important to define what umbrella companies are, and why this market has been under such scrutiny as of late.
An umbrella company is defined as a business often used by recruitment agencies to pay temporary workers. In most cases, the umbrella company employs you and pays your wages through PAYE. However, it does not find temporary work for you, and this is all done through the recruitment agency.
Why Umbrella Companies are Under Scrutiny
Tax Avoidance
Payroll umbrella companies have been speculated to be defrauding the HMRC of hundreds of millions of pounds through evasion of income tax, national insurance contributions and VAT.
Exploitation of Workers
Temporary workers have also fallen victim to exploitation as they have faced misleading and unfair deductions from pay, with widespread breaches of holiday leave and pay entitlement. To make matters worse, it has been widely reported that some umbrella companies promote and coerce their employees to use tax evasion schemes, leaving workers potentially facing significant future tax bills.
Consultation to Clean Up Umbrella Industry
Sparked as a response to the call for evidence to better define the umbrella sector, the government has outlined their new consultation as follows:
“The purpose of this consultation is to seek views on proposals to tackle non-compliance with both tax and employment rights by umbrella companies. The government has three main objectives for the umbrella company market. These are to:
- Deliver improved outcomes for workers
- Support a level playing field in the umbrella company market
- Protect taxpayers from the significant revenue losses that currently arise from non-compliance”.
The government hopes for this consultation to enable both people and businesses to succeed in the labour market, supporting economic growth and ensuring everybody feels it benefits.
Comments from Industry Figures
Responding to the publication, Neil Carberry, REC Chief Executive said: “Regulation of umbrella companies is long overdue. This announcement represents progress that is crucial to sustainable temporary work market. Unlike recruitment firms, umbrellas currently operate without a specific regulatory framework, leaving workers and employment businesses at risk of non-compliance on worker rights and tax. While there are voluntary standards and audits in place for these firms, a strong legislative base is necessary. This consultation is a step towards that.”
As Neil has stated, the government’s announcement is vital for sustaining the temporary work market, and whilst there is a lot of work to be done, it is an encouraging step towards change.
Choosing an Agency with an REC Corporate Membership
REC members are recognised for their professionalism and the value they provide to clients and candidates. When a recruitment agency displays an REC logo, it demonstrates that they have passed a compliance assessment and adhere to a code of professional practice.
In a turbulent market where exploitation is prevalent, choosing a recruitment agency that is an REC corporate member is the right thing to do, for they work collaboratively with the REC to ensure they comply with legislation and continue to deliver the highest standards of recruitment.
Temporary Recruitment Services with The Recruitment Consultancy
The Recruitment Consultancy is an REC corporate member and has been building a well-earned reputation since 1997. With managed payroll, legal checks, paperwork, and skill testing, you’re in safe hands with us. So, whether you’re an employer looking to find your next temporary worker, or a candidate on the hunt for a new opportunity, get in touch today, we can help.