Blogs

The Government’s ‘Call for Evidence: umbrella company market’ is now closed. In it ministers invited views from stakeholders on umbrella companies’ role within the UK labour market, and their interaction with tax authorities and employment rights bodies. Here we look at the result of the consultation and what action may follow.

Consultation

In June 2023 the Government published its ‘Call for Evidence: Umbrella company market Summary of Responses’ which relates directly to the consultation it undertook between November 2021 and February 2022. In the consultation issues such as The Role of Umbrella Companies in the Labour Market, Employment Rights Issues in the Umbrella Company Market, and Tax Non-Compliance in the Umbrella Company Market were examined. 

Over 400 responses were received to the original Call for Evidence, including from individual workers, employment businesses, trade bodies, umbrella companies, accountants, trade unions, public bodies and end-clients. 

Regulation

The findings of the Response document on all aspects of the umbrella company industry are interesting, particularly on cost-reduction for recruitment agencies and end-clients, the protection that umbrella companies offer employees, the disadvantages that compliant umbrellas face versus non-compliant ones, and employment rights within the market, but here we’re going to concentrate for the moment on regulation and what both the respondents and the Government have said about it.

Regulatory standards were discussed, in particular the desire for the regulation of:

• How much an umbrella can charge their employees for the services they provide

• Standardisation of payslips

• The practice of recruitment agencies influencing workers to join an umbrella company that they are affiliated to

• Enforcing employment rights.

Overall, most respondents called for regulation of the umbrella company market. Many responses called for strict Government-led oversight of the sector leading to regulation and sanctions for non compliance, believing that this would ‘restore credibility’ to the market and lead to a more level playing field for everyone. The general consensus was that regulation would assist with tackling the issue of tax non-compliance as well as the fair and legal treatment of employees. 

Government-led accreditation

Several respondents suggested some form of Government-led accreditation, or kite-marking) which would assist recruitment agencies in avoiding non-compliant umbrella companies. Many also put forward the view that some Government or external oversight of the market is needed simply because the current system of self-regulation and accreditation is not working and is in need of reform.

What happens next?

HMRC, HM Treasury and the Department for Business and Trade are now analysing the feedback from the Consultation. It proposes to publish a consultation on policy options which will allow stakeholders the chance to comment on specific proposals on issues such as tax non-compliance and other areas of concern. 

The Government now has two options:

1. Continue to allow the umbrella market to operate in an unregulated manner

2. Act soon to regulate the market.

The latest that the current Government can possibly hold a General Election is January 2025, however, the Prime Minister, Rishi Sunak, is said to favour November 2024 in order to allow the economy to bounce back and grow after Brexit, the COVID-19 pandemic and the worldwide influence of the war in Ukraine. The question is whether Mr Sunak will act before the General Election and implement changes to the umbrella company market in an effort to win the votes of the 400,000 umbrella company workers in the UK, or whether he will simply leave the decision to the next Government, in the hope of not rocking the boat?

Clearly there is a demand for change, especially regulation and/or accreditation. Contractors want it, recruitment agents want it and compliant umbrella companies themselves want it. And there’s little doubt that it would enhance the industry’s reputation, uphold standards, protect everyone in the supply chain, and raise more money for HMRC. Whether we see that change before or after 2024 is up for debate. 

In the meantime, Payme will continue to uphold the highest standards of compliance, as demonstrated by our membership of the Freelancer and Contractor Services Association (FCSA). We will continue to be a strong advocate for compliant umbrella companies, recruitment agents and the fair treatment of our employees, and will continue to call for strong, robust regulation to allow this essential industry to thrive in a fair and compliant manner. 

If you’d like more information about how Payme can help you as a recruitment agency or as a contractor, call us on 0333 200 0845, email us at [email protected], or fill in the contact form here.