HMRC’s Latest Umbrella Guidance – Helpful Or Nothing New? 

HMRC recently issued guidance for recruitment businesses using umbrella companies, which on the surface seems a positive step forward, but what does it actually mean for umbrella workers?

Nothing has actually changed
The first point to make is that nothing has actually changed – no new rules or regulations have been brought in.  Instead, it seems to be a PR exercise to give the illusion of action whilst we all continue the extremely long wait for government controlled regulation of the sector.

So what does the guidance say? 
It doesn’t add much of any substance to HMRC’s previous guidance for recruitment businesses, first issued in 2021 and subsequently updated just weeks ago, on 8 November 2023.  At face value, this new publication appears to be an unnecessary duplication of effort.  However, there is an important section that is actually very positive and directly impacts on those usually forgotten – i.e. you!

Supporting workers
Whilst much of the latest guidance is nothing new, we can’t help being cheered by the very fact that there is a whole section dedicated to you, the workers.  As the people most affected by decisions further up the supply chain, it always astonishes me that you have the least amount of say in how you get paid.

HMRC advise agencies should do the following for their workers paid via umbrellas:

  • explain umbrella working to help you understand employment rights and tax responsibilities
  • be clear about pay rates, i.e. assignment rate (paid to the umbrella) vs gross pay (paid to you)
  • issue Key Information Documents (KIDs) before agreeing terms with you

Decent recruitment businesses that care about their workers will be doing these things anyway, however it is good to see them listed nonetheless.

But is it enough?
With tax avoidance schemes getting smarter and continuously exploring new ways to lure in recruiters and workers, this guidance is nowhere near comprehensive enough. It’s all straightforward, widely understood advice that won’t stop a recruitment agency from falling into the trap of engaging a non-compliant umbrella company.

Rather than taking firm action – and by this I mean regulating the umbrella industry and holding those facilitating tax avoidance responsible – the government continues to sit on its hands.

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