The government has launched a consultation into the role that umbrella companies play in the labour market and how they interact with the tax and employment rights systems.
The consultation, launched in the first week of December 2021, will last until 22 February.
The consultation is a collaboration between HMRC, the Treasury, and the Department for Business, Energy and Industrial Strategy 2022 and has been actioned to address some concerns by key stakeholders in the supply chain, and to tackle tax non-compliance and help to improve the protection for umbrella workers.
The key concerns raised have been that some umbrella companies are taking a lot of money from contractors while breaching their workers’ rights.
Umbrella companies act as the middle man between recruiters and temporary staff such as freelance contractors. The advantage of them to the worker is that the Umbrella will handle their payroll, taxes and National Insurance contributions.
The introduction of IR35, to the public sector in 2017, and more recently to the private sector in April 2021, has fueled the growth in the number of contract workers operating via an umbrella. In 2008, HMRC estimated the number of umbrella workers to be approximately 100,000. By 2015 that figure jumped to close to 400,000 in 2015, and now it is estimated that the figure could be closer to 600,000.
On the back of this inexorable growth, there has been a rise in non-compliant umbrellas offering high take-home incomes to contractors. These arrangements to save on tax are in effect tax avoidance schemes.
These arrangements leave you, the contractor, at risk as you are ultimately responsible for your tax affairs and for paying the correct amount of tax and National Insurance. HMRC is cracking down on these types of arrangements, but that may result in contractors who are signed-up to these schemes paying additional tax, interest and even penalties as a result.
The consultation has been welcomed by many across the industry, it will be interesting to find out the findings in Q1 of 2022.