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The government has responded to the call for evidence on the umbrella company market, which closed in February 2022, and issued a new consultation: "Tackling non-compliance in the umbrella company market."
The consultation was launched on June 6th, 2023, and seeks views from stakeholders within the contractor supply chain on how best to regulate umbrella companies. It examines several areas, including potential ways of defining umbrella companies within the law and limiting the number of allowable payment methods within the supply chain.
The government have released a full consultation document; however, please see below for a summary of options that have been outlined:
The first option provided is enforcing supply chain compliance through mandated due diligence for either employment businesses or end clients. It is not yet clear where the responsibility for the due diligence would lie or what it would involve; however, the recent IR35/Off-Payroll legislation may give an indication of HMRC's intentions, should this be the preferred option.
The next option on the table would be to introduce legislation to allow for a transfer of debt, whereby another business (employment business or end client) in the supply chain could become liable for any uncollected income tax and NICs. This option provides the required encouragement for employment businesses and end clients to secure the supply chain and, perhaps more importantly, finally allows for the removal of providers that currently put contractors at risk through the proliferation of tax avoidance schemes. Where the supply chain is supported by a fully compliant umbrella company, like Parasol, the employment business or client would have no risk under any proposed debt transfer rules since tax and NI is paid in accordance with the law.
The final option presented would look to make the employment business (that supplies the worker) the employer for tax purposes. Although further detail is required, this seems a disproportional step when working with an Umbrella company that already fully complies with tax legislation.
We firmly believe that the introduction of additional safeguards would be a positive step forward in ensuring a secure supply chain, protecting contractors and levelling the playing field in favour of compliant Umbrella companies in the industry.
As a founding member of FCSA, Parasol & Caroola Accountancy have been at the forefront of promoting compliance within the industry for many years and will continue to take an active role in responding to the consultation, as well as supporting both employment businesses and end clients in the run-up to and implementation of the final legislation, which is expected by April 2024.