If Rishi Sunak wishes to prove he is the iron Chancellor, he must come down hard on the bosses behind Britain’s unethical umbrella companies, who mistreat their workers and rip off other taxpayers while operating in plain sight.
The scale of the scandal is made abundantly clear in a draft policy submitted to the Government by two respected industry figures, Rebecca Seeley Harris and James Poyser.
Their proposals call on Rishi Sunak to use regulation to halt dishonest behaviour in the umbrella sector, which includes the practice of withholding holiday pay, making incorrect payments of employers’ national insurance contributions, and the abuse of employment allowance tax relief.
Critics claim that this misconduct leads to HMRC and staff being cheated out of billions of pounds. The use of tax avoidance schemes, including the use of so-called ‘mini umbrellas companies’ are estimated to cost workers and HMRC around £1bn annually, the report claims.
Mr Poyser said: “ It’s clear that ‘accreditation’ and self-regulation of this market is simply not working, and instead has created cartel-like behaviours and unethical practices. It is a fair and reasonable statement to say that umbrella workers are a revenue-generating commodity for the supply chain to exploit.”
"We have witnessed payslips that don’t reconcile, deductions taken from workers but not paid to HMRC, holiday pay being unfairly pocketed, workers forced to use a single umbrella company with artificially inflated fees and agree to ‘opt-out’ of worker protections. These practices are prolific, including amongst the most well-known ‘accredited’ umbrella companies.”
The Loan Charge All Party Parliamentary Group published a report which exposed significant malpractice in the supply chain by many umbrella companies and recruitment agencies.
Some of this has driven the operation and mis-selling of tax avoidance schemes,which has caused the supply chain to be dubbed a ‘Wild West’ by many professionals.
One of the strongest advocates of regulation is Julia Kermode, the founder of iwork.co.uk, which protects the UK’s independent workforce.
She said: “Having spent the last seven years promoting the compliant side of the umbrella sector, I know that the case for regulating the sector is compelling. You have only got to look at the loan charge scandal to see how abhorrent disguised remuneration schemes are.”
Too many unscrupulous individuals have been allowed to set up apparently legitimate umbrella companies. Years later, their victims have found themselves with six-figure tax bills, causing terrible anguish. Seven suicides have been reported to the Loan Charge APPG.
Ms Kermode said: “Often these individuals have been introduced to the scheme via their recruitment agency, wrongly believing that it must therefore be compliant, whereas the recruitment agency is likely to have received a significant financial incentive for making the introduction.
“Neither the recruitment firm nor the scheme promoter care that the financial impact of their wrongdoing is likely to mean bankruptcy for their innocent victims, who despite being misled receive no Government support and instead are unfairly portrayed as deliberate tax avoiders.”
“On the flipside, compliant umbrellas play a vital role in enabling temporary workers to have continuity of employment while working for lots of different end-clients. Think of a supply teacher who might work in five different schools in a week. Or an agency nurse who might do shifts at five different hospitals in one week.”
The Government said it has already introduced requirements to improve the information provided to new agency workers about their contractual terms and pay rates, and it has committed to establishing a single enforcement body to further protect vulnerable workers.
Given the scale of the problem, further action is surely required. The Chancellor must appoint a director of Labour Market Enforcement to root out corrupt umbrella firms and also ensure there is an enforcement body to recover holiday pay on behalf of workers.
Only then will order be restored to a frontier which has been untamed for too long.