UK Treasury consults on proposals to crack down on ‘umbrella companies’

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UK organisations that are keen to take responsible and compliant approaches to their tax and accounting in Newton Abbot, Plymouth, or Wellington may be interested to read about new Government plans that will put “umbrella companies” under the microscope.

As the Financial Times has reported, the proposals by HM Treasury could see UK firms held liable for the avoidance of tax by so-called “umbrella companies” that increasingly act as intermediaries in the recruitment of temporary workers.

What actions might the Government take in relation to these companies?

The Treasury has outlined three broad possibilities for how steps could be taken to tackle widespread tax avoidance and employment rights abuses by umbrella companies.

The first proposed option would entail a new requirement being put in place for recruiters or their clients to carry out due diligence on umbrella companies; in the event of them failing to do this, they would be subject to penalties.

The second option put forward by the Treasury consultation, meanwhile, is legislation that would give HM Revenue & Customs (HMRC) powers to collect unpaid tax from another organisation in the labour supply chain.

Finally, the third option would involve recruiters being treated as the employer for tax purposes. Such recruiters would be held responsible for any payroll irregularities, even if they turned to an umbrella company in order to undertake the function.

The Treasury is also looking at setting a stricter definition of umbrella companies, so that they can be prevented from simply evolving new methods in order to bypass any new rules.

Umbrella companies continue to be a major topic of conversation among UK professionals

With more than 500,000 people in the UK – encompassing individuals in such roles as teaching, nursing, and consulting – now working through umbrella companies, it is easy to see why the Government feels the need to apply greater scrutiny to such arrangements.

Unions have demanded that umbrella companies be banned altogether, although the latest announcement by the Treasury did not go that far.

Nonetheless, the Financial Times reported the response from industry bodies to the consultation to be a positive one, with the development being welcomed as “long overdue”.

Still, the newspaper cited those bodies as saying that the proposals would require detailed work in order to become action. They added that the plans would also not be very successful if ministers did not devote more resources to the enforcement of both new and existing labour market rules.

Recruitment & Employment Confederation (REC) head Neil Carberry was quoted as saying that umbrella companies were “prone to evolving quickly… so any new rules will need a strong enforcement framework. This can’t be bodged by handing responsibility to someone else in the supply chain.”

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