A consultation examining the umbrella company industry has been launched by HMRC, as the revenue service looks to gain a “detailed and up-to-date understanding of the market and how it is continuing to evolve”. Requesting evidence from freelancers regarding umbrella companies, the consultation will run until February 22 2022 and “is intended to complement the government’s commitment to bring umbrella companies into scope for labour market enforcement”.
HMRC said it was “aware of concerns regarding non-compliance with employment law, including umbrella companies failing to provide employment rights such as holiday pay, and poor market practises, for example, a lack of transparency over pay rates, fees and charges”.
Over the last 20 years, the use of umbrella companies has grown significantly and this growth has rapidly accelerated since April 2021, when new IR35 rules were introduced for private sector companies engaging contractors.
However, as the use of umbrella companies has increase, so has scrutiny over their working practices and how the market is regulated has also increased – some umbrella companies have been linked to tax avoidance schemes while others have been accused of not providing holiday and sick pay to contractors that they engage.
Andy Chamberlain, Director of Policy at the Association of Independent Professionals and the Self-Employed (IPSE) said: “We and many others have long stated that the sector is crying out for better regulation around umbrella companies, and we, therefore, welcome HMRC’s renewed focus on this area. Lack of regulation has caused a wild west, with there being well-documented problems around the use of tax avoidance schemes.”
“Any potential reforms from HMRC following the call for evidence will be long overdue and much needed in order to instil confidence around the use of umbrella companies by self-employed workers and businesses,” Chamberlain added.
Author: Steven English