HM Treasury have opened a new Call for Evidence, ‘Umbrella Company Market’ inviting views on the role that umbrella companies play in the labour market, and how they interact with tax and employment rights. It sets out concerns raised by stakeholders, as well as government action already taken to tackle tax non-compliance and improve protection for workers.
At a glance
At a glance
External analysis and HMRC data suggest that the overall umbrella company market has grown significantly since it first became popular 20 years ago.
- In 2007-08 an estimated 100,000 workers were working through umbrellas compared to around 500,000 in 2020-21.
The government is aware of concerns regarding non-compliance with employment law, as well as tax non-compliance including tax evasion through the use of mini umbrella companies, and Disguised remuneration schemes facilitated by umbrella companies.
The call for evidence points out that there is currently no mechanism for umbrella companies to be regulated in the way that employment agencies and employment businesses are, though as employers they are required to comply with wider employment and tax law.
The intention is to bring umbrella companies under the same regulation framework as agencies to address issues such as non-payment of wages, payroll ‘skimming’ and non-payment of holiday pay.
Steps have already been taken to combat tax non compliance such as the Disguised remuneration loan charge and action against Mini Umbrella Company (MUC) fraud and payroll company fraud.
The government wants to ensure it has a detailed and up to date understanding of the market and how it is continuing to evolve by seeking views on the benefits of the umbrella company and about umbrella company use and practices.
The call for evidence starts with a terminology list which has seventeen different terms explained, emphasising the complexities that workers have to grapple with when trying to understand how umbrella companies work.
Responses to the call for evidence should be sent to
Useful guides on this topic
Starting Work 5. Agency or umbrella tax-avoidance risk
If you obtain contract work via an employment agency you could find yourself accidentally caught up in an illegal tax avoidance scheme. HMRC has now created a basic tool to help you detect whether you are in an illegal scheme.
Spotlight 45: Umbrella companies
HMRC have published a tax Spotlight: ‘Umbrella companies offering to increase your take-home pay’. It highlights the fact that many employees and self-employed contractors are failing to realise that some staff agencies and umbrella companies are flouting tax anti-abuse rules.
Off-Payroll Working: public sector engagers
The 'Off-Payroll Working' rules move IR35: the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees, away from the worker's company to the End-Client in the labour supply chain.
Off-Payroll Working: PSCs & Private Sector Engagers
What is Off-Payroll Working? Who does it apply to? What are the rules?
IR35: Off-Payroll
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?
External link
Call for Evidence questions
Questions for employment businesses and end clients about their use of umbrella companies
Q1: Do you represent an employment business, or end-client?
Q2: In which sector does your business operate, or what type of service does it provide?
Q3: Roughly how many people does your organisation employ directly and operate PAYE for overall? [micro (0-9 employees), small (10-49), medium (50-249) and large (250+)]
Q4: If you use umbrella companies, roughly how many people are employed via an umbrella company on behalf of your business each year?
Q5: What factors do you take into account when deciding how to engage staff?
Q6: If you use umbrella companies, why do you work with them?
Q7: If you use umbrella companies, does working with them create any advantages? If so, what are they?
Q8: Does working with umbrella companies create any disadvantages? If so, what are they?
Q9: Have you noticed any change in the way umbrella companies market themselves and the benefits they offer over the last 5 years? What has changed?
Q10: Have you considered working with other intermediaries, such as payroll bureaux? a. If yes, which other intermediaries? b. If yes, why did you decide not to work with them or why did you choose to work with an Umbrella company over these other intermediaries?
Q11: The government has heard concerns about supply chains for labour becoming longer. Do you have views on the benefits and drawbacks of longer supply chains and/or why businesses may find that useful?
Q12: Do you encourage or require your work-seekers to work through an umbrella company? a. Why? b. What type of workers?
Q13: Do you operate a preferred supplier list? a. If yes, how many do you use? b. If yes, how do you select these? c. If yes, why do you use a preferred supplier list?
Q14: Do you do carry out due diligence on umbrella companies you work with/on your preferred supplier list? How?
Q15: What proportion of umbrella companies that you work with are accredited by a third-party trade body and which trade body?
Q16: Do you receive all the required information from the umbrella company to accurately complete the Key Information Document?
a. Do you independently validate the information received from the umbrella company?
b. How?
Questions for work-seekers about their experience of working through umbrella companies
General Questions
Q17: Which sector do you work in? For example, hospitality, retail, or IT.
Q18: How would you describe the main role(s) that you perform?
Q19: How many umbrella companies are you employed by currently?
Q20: How many different assignments have you worked while being employed by the same umbrella company?
Q21: Approximately, what percentage of your annual income comes from roles performed while employed through an umbrella company?
Q22: If you have been working for umbrella companies for more than a year, have you noticed any change in the way umbrella companies market themselves to workers and the benefits they offer? What has changed?
Questions about working through umbrella companies
Q23: Do you know which organisation is responsible for your pay, employment rights and employment status?
Q24: Why do you work for/through an umbrella company?
Q25: If you have chosen to work through an umbrella company rather than being paid directly by the employment business, why was this?
Q26: How did you choose which umbrella company to work through?
Q27: Are you issued with terms or a contract by the umbrella company?
Q28: Do you receive a payslip from your umbrella company and, if so, do you understand the payslip?
Q29: Do you have any other feedback on the experience of working through an umbrella company?
Questions about the Key Information Document
Q30: Do you know who is responsible for issuing the Key Information Document to you?
Q31: Are you, or have you been, issued with a Key Information Document when you sign up with an employment business for the first time?
Q32: Are you, or have you been, re-issued with a Key Information Document when the information changes? Q33: Has receiving a Key Information Document helped you to better understand what you can expect to be paid, at what point and by whom?
Tax non-compliance questions
Q34: If you are an employment business or end client which uses umbrella company employees, do you take any steps to prevent umbrella companies which may engage in tax non-compliance from entering your labour supply chains? If so, what?
Q35: How could employment businesses or end clients, who use umbrella companies, do more to ensure tax compliance in their supply chain?
Q36: Do you have experience of umbrella companies engaging in any related schemes or models to those covered above, or any other tax noncompliance not covered in this paper? If so, what are they?
Q37: How could the government support or encourage employment businesses and end clients to do more to ensure tax compliance in their supply chain?
Q38: What further steps, if any, do you think HMRC and government should take to prevent or tackle non-compliant models outlined in this section?
Turn those acorns into oaks 😂
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