To uphold compliance and integrity within the umbrella companies market, the government yesterday unveiled further details on its plans to address non-compliance.

Yesterday’s Tax Administration Day summary serves as a platform for this crucial announcement.

Susan Ball, employment tax partner at RSM UK, emphasised the significance of the government’s commitment to legislating statutory due diligence. She remarked, “[Yesterday’s] announcement marks a significant step for the umbrella and agency sector, as well as for organisations who use them, as the government has confirmed it will legislate statutory due diligence. We await further details on the penalties for non-compliance, but it’s hoped this move will help eliminate malpractice throughout the labour supply chain.”

This development comes on the heels of a consultation launched by the government last summer, seeking strategies to combat tax non-compliance within the market.

The proposed statutory requirement for end-clients or recruitment agencies to conduct due diligence on umbrella companies was a focal point of this consultation.

There are concerns

However, as Susan Ball points out, certain elements of the consultation seem to have been set aside, raising concerns. Notably absent from yesterday’s summary were discussions on transferring payroll tax debt from non-compliant umbrella companies to the recruitment agency or end-client, or imposing PAYE and NIC obligations on recruitment agencies supplying workers employed by umbrella companies. Until full details of the consultation are disclosed, these concerns may linger.

Nonetheless, the statement released yesterday’s explicitly acknowledges ongoing engagement with the recruitment industry and other key stakeholders regarding the specifics of a statutory due diligence regime. This proactive approach ensures that the government comprehensively understands the potential impact of any new regime on organisations utilising umbrella companies.

In the interim, Susan Ball recommends adherence to HMRC guidance published in December 2023, titled “Tackling non-compliance in the umbrella company market.” This guidance outlines expectations for organisations and may provide insights into future developments.

As stakeholders await further clarity and specifics, it’s evident that statutory due diligence represents a pivotal step towards fostering compliance and accountability within the umbrella companies market.

The Association of Professional Staffing Companies (APSCo) welcomes the government’s initiative to introduce statutory due diligence for umbrella company use, recognising the need for greater compliance. However, APSCo cautions that the issue is multifaceted and requires more comprehensive solutions. Tania Bowers, Global Public Policy Director at APSCo, stresses the necessity of clear definitions and licensing within the umbrella sector, while also advocating for a registration process overseen by an appropriate body to address financial wrongdoing. APSCo supports integrating due diligence into regulation but doubts its effectiveness in combating tax non-compliance, urging a broader approach to address underlying issues within the sector while emphasising the importance of fairness and accountability.

Amelia Brand

Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.