Why Government must destroy rogue umbrella firms who cheat taxman and abuse staff - Greg Wright

Umbrella companies employ temporary workers on behalf of employment businesses and end clients. The umbrella company’s role as the employer is to pay salary, deduct Income Tax and National Insurance contributions and provide employment rights such as holiday pay, statutory sick pay and workplace pension auto-enrolment.

In 2021, the Loan Charge All Party Parliamentary Group published a report which provided evidence of 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, the MPs’ report said.

The Government has now completed a consultation process about non-compliance in the umbrella market and is keen to introduce new ways of working which lead to fairer outcomes for workers. As part of this consultation, many umbrella company employees reported a lack of understanding about how their engagements worked, with some citing cases of poor treatment by their umbrella company employers.

To quote the Government’s report: “A number of respondents reported worries about being engaged by non-compliant umbrella companies and the risk of facing tax bills at a later date. Businesses that responded recognised the issues in the market, particularly with treatment of workers and tax noncompliance but also outlined the perceived benefits of the model. There was a consensus view that poor behaviour should be addressed to protect workers and provide a level playing field for compliant employment businesses and umbrella companies.”

The consultation process uncovered a sense of frustration that those employment businesses that undertook due diligence or refused to contract with non-compliant umbrella companies could be undercut by firms that were happier to turn a blind eye. Umbrella companies and their representatives said that noncompliant competitors could offer services at a lower cost, and that addressing this would help to level the playing field for reputable businesses.

Responding to the report, Dave Chaplin, CEO of contracting authority ContractorCalculator said: “It is good to hear that finally, the Government is stepping in to clean up an industry that harbours a murky side, giving the whole industry a bad name. The consultation document suggests that a ‘behavioural effect’ to policing will be used, whereby clients and agencies in the supply chain will be saddled with liability if the umbrella fails to process payments correctly. That’s a sensible idea.”

Action to bring order to the “Wild West” is long overdue. By taking steps to destroy the unscrupulous operators, the Government will protect the public finances and ensure thousands of workers are not subject to abuse.

Greg Wright is the deputy business editor of The Yorkshire Post