LITRG Press release: Tax campaigners welcome commitment to ‘umbrella’ company regulation
The Low Incomes Tax Reform Group (LITRG) says this week’s long-awaited announcement of the launch of a Single Enforcement Body (SEB) for employment rights is a step in the right direction to protect low-income umbrella company workers. But LITRG says the inevitable time and complexity involved in setting up this new workers’ watchdog must not prevent HMRC from acting now to combat some current tax abuses affecting workers in umbrella companies, such as disguised remuneration.
On Tuesday (8 June) the Department for Business, Energy and Industrial Strategy said1 it will launch the SEB to tackle modern slavery, enforce the minimum wage and protect agency workers – including delivering on prior commitments to ‘regulate umbrella companies’.
But it could be years before the SEB is up and running as it will require primary legislation to create it, merging three existing enforcement bodies. And umbrella companies are complex, and issues can have multiple strands, so LITRG suspects it will take time for everyone involved in SEB to get up to speed on current pressing issues.
Victoria Todd, Head of LITRG, said:
“We welcome this announcement. Just last month2 we strongly urged the Government to take action to protect umbrella company workers and added our voice to growing calls for the regulation of this area.
“It has long been our view that the low-paid require their tax position or employment status position to be protected through effective state enforcement and the SEB has the potential to have a really positive impact on all UK workers. But it will not offer a complete solution. A lot of financial abuses that workers face with some umbrella companies are tax related not employment law related or cut across both areas – and tax will not be in the remit of the SEB per se.
“In the longer term, there is a clear and unequivocal need for HMRC to share information and work closely with the SEB. In the short term, we urge HMRC to use their existing powers to act now against tax non-compliant umbrella companies, particularly those which use disguised remuneration to pay workers.3 This is a problem that is affecting low-income workers now – some of whom are unaware that they are in any disguised remuneration scheme as the motivation and benefits sit with others in the labour market supply chain.
“We set out some ideas for HMRC in our recent response to HMRC’s clamping down on the promoters of tax avoidance consultation.4 We also know that other sector experts5 have also recently published helpful suggestions for quick win interventions to address the issues of tax non-compliance in the umbrella sector that HMRC should give serious consideration to.6
“While tough action against promoters of tax avoidance schemes is important for other reasons, we do not believe it is the answer to the problem of non-compliant umbrella companies, as many umbrella arrangements these days are not backed by sophisticated promoter structures. Currently there is no real incentive for the umbrella companies to stop using these schemes to pay workers and the cycle continues, which has a significant impact on the well-being of the workers involved but also wider implications for the reputation of the tax system.”