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Latest Insight On Government Plans To ‘Regulate’ Umbrella Sector

Yesterday (18 April 2024) was TAM Day, which you can be forgiven for not knowing is “Tax Administration and Maintenance Day”, when the government publishes details on how they plan to achieve their budget announcements.  This meant we finally got some insight into the government’s plans for regulating the umbrella sector, hooray!

Regular readers will know that this issue has been rumbling on for many years now, with the government committing to regulate umbrellas back in 2018.  It’s now 6 years and several consultations later, and plans are at last starting to take shape.

So what is the plan?

The government have said that they are “minded to introduce a due diligence requirement to drive out bad actors from labour supply chains”.  This was one of the options proposed in the last consultation, and will see recruitment businesses become legally responsible for doing due diligence on the umbrella companies that they work with.

There is likely to be a penalty regime to ensure that the supply chain complies with the due diligence requirement, and in fact last year’s consultation mooted the possibility of linking any fines to the amount of tax owed by a non-compliant umbrella.  Recruitment firms will certainly be hoping not given the volume of money going through even a small umbrella!

Will it be onerous in practice?

Yes, it is likely to very problematic to implement given that there is no single approach to due diligence that can confirm that an umbrella is truly compliant.  The cleverest of tax schemes has fooled many people who you would expect to know better, and even experts are not immune to being hoodwinked.  So it’s difficult to see how recruiters’ due diligence can be expected to do a better job than HMRC nor the many different umbrella compliance offerings in the market.

But will it be effective?

In a move that mirrors the government’s approach to IR35, they are once again delegating their enforcement role to businesses, who will become liable for doing HMRC’s work for them.  It is a total cop out that is a disservice to all contractors as once again the government is not doing it’s job properly!

Unless of course the new legislation is so onerous that businesses decide not to work with umbrellas at all, which could potentially eliminate the industry entirely.  The sector has become so complex and problematic that self-implosion may in fact be the grand plan.

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