The government has rejected calls for further regulation of umbrella companies.
Amendments to the Finance Bill were put forward last week in a bid to “curb or kill” umbrella companies.
Umbrella companies and IR35
MPs that supported the amendments hoped they would stop “aggressive” tax avoidance schemes being introduced and encouraged by some agencies, prevent the exploitation of contractors forced into umbrella schemes which “skim” money from them, and make agencies and clients liable for any malpractice.
MPs David Davis and Sir Iain Duncan Smith outlined their support for the Finance Bill amendments in parliament yesterday evening, but MPs voted to reject them.
Dave Chaplin, CEO of ContractorCalculator, who is among those who have pressed for changes, described the outcome of the vote as a “missed opportunity not to tame the ‘Wild West’ of the unregulated umbrella market”.
“The continued lack of regulation and impotence by the government on this issue will only seek to fuel the non-compliance further and I would suggest contractors conduct due diligence before signing up to any umbrella company,” said Chaplin.
“If contractors are forced to use an umbrella and not offered agency payroll, then this could be a sure sign of malpractice. Contractors should not use umbrellas unless they are 100% confident that they can check their own calculations.
“Moving forward, since the government won’t act, others will have to, and I envisage considerable litigation in this area around rogue firms. Where there has been fraud, I expect to see the appropriate authorities step in.”
Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance, said: “It is disappointing that after much considered and well-presented arguments by David Davis and Iain Duncan Smith last night the government chose to dismiss the issues sought to be addressed.
“[Financial secretary to the Treasury] Jesse Norman believes that adding enforcement to the remit of The Employment Agency Standards Inspectorate (EASI) will address the issues of non-compliance in the umbrella sector. I would like to remind the government that EASI is already struggling with its existing commitments of regulation so I fail to agree that tasking an already over-stretched body with the job of regulating umbrellas will change anything.”
Separately, numerous policy changes were put forward by Rebecca Seeley Harris, chair of the Employment Status Forum and James Poyser, CEO of inniAccounts, earlier this month, following a BBC report that claimed 48,000 “mini-umbrella” companies had been created over the past five years to reduce recruitment agencies’ tax and national insurance liabilities.