Five umbrella companies endorse industry regulation plan, as Finance Bill amendments loom

Parasol, JSA, Liberty Bishop, CWC Solutions and Orange Genie are all in favour of a new policy package to regulate their operations and the operations of all other UK umbrella companies, to stop billions in tax abuse.

The five umbrella companies told ContractorUK that they endorse the package, drawn up by tax lawyer Rebecca Seeley Harris and accountant James Poyser, who jointly calculate that it could plug a £4.5bn hole in the exchequer.

Submitted to both Treasury minister Jesse Norman and chancellor Rishi Sunak, the package is backed by contractor recruitment agencies too, notably Pendragon Consultancy and VIQU.

'Amendments'

The show of support from almost 10 established contractor businesses (Orca Pay Group also endorsed the package online, and likely supporter giant group is yet to comment), comes ahead of today’s Finance Bill "amendments" on umbrella companies.

Tabled by David Davis MP, the amendments would put into law a few of the policy aims outlined in the Poyser-Seeley Harris plan, yet neither adviser was available to comment at the time of writing on whether their proposals have simply been copied by the veteran Tory.

In fact, Mr Davis in his motion and the advisers in their package each identically ask the government to appoint a director of Labour Enforcement - a position still vacant since Matthew Taylor reluctantly left in January 2021.

'Scoundrels'

Clearly concerned with the future operation of umbrella companies now that the new IR35 off-payroll rules are in force, the MP offers the government a choice in his tabled amendments.

It is to either impose new conditions on umbrellas from April 2022, such as a mandatory ‘transparent margin’  and no more kickbacks (‘no payment given to another third party’), or to ban umbrellas outright.

Despite last week condemning umbrella companies as “scoundrels”, Mr Poyser believes that outlawing umbrellas entirely – much as Ruth Cadbury MP proposed – would be a step too far.

'A ban on brollies is unecessary'

In a joint-statement with the founder of ReLegal Consulting Ms Seeley Harris, the inniAccounts CEO clarified: “There are umbrellas that do operate above board.

“[So] there is a place for fair umbrellas in the labour supply chain, [meaning] a ban as proposed….[by one of Mr Davis’ amendments] is, in our opinion, not necessary.”

Mr Poyser continued: “However, we believe that without urgent intervention from the government, rogue practitioners will continue to abuse workers’ rights and evade tax. As such, we support any motion that seeks to bring a stop to unethical practices.”  

'Passes the PAYE liability'

But it’s less of a stop, and more of a deterrent that Mr Davis and his amendments supporters’ Sir Iain Duncan Smith and Andew Rosindell MP hope to insert into brolly supply chains.

“The effect of one of the amendments appears to pass the PAYE liability up the chain to the hirer,” says CWC Solutions managing director Caroly Walsh, reflecting on a Finance Bill amendments list.

“This will get rid of avoidance schemes [masquerading as umbrellas] because no agency or hirer is going to let off workers from paying the right amount of tax and NI, only to become liable to pay the deductions themself.”

'Would focus minds on supply chain management'

The founder of Pendragon Consultancy Janet De-Havilland echoed: “Under one of the proposed amendments, [liability would] sit with the agency and/or end-client.

“This would prevent the application of downward pressure [on] umbrellas to engage in non-compliant practices in order to secure a place on the Preferred Supplier List.

“It would also focus the minds of those running employment businesses to fully manage compliance in their supply chain”.

'Not as difficult as the government thinks'

Independently of one other, both Ms De-Havilland and Ms Walsh made clear that their respective businesses each support efforts to clean up the umbrella sector, with the former saying aspects of the Poyser-Seeley Harris plan were “not as difficult as the government thinks.”

Meanwhile, following a BBC probe earlier this month into Mini-Umbrella Companies, official guidance on ‘applying due diligence principles to assure your labour supply chain’ has been updated by HMRC.

Sounding aware of the timing, Seb Maley, chief executive of Qdos, said the May 13th guidance would prove “particularly useful”.

'Devastating'

“As the government rightly explains, the cost of non-compliance is both financial and reputational and can be devastating. 

“Whether a firm engages freelancers, sole traders or umbrella companies,” Mr Maley said, “it’s essential they carry out appropriate checks to make sure the working relationship - whatever that may be - is a compliant one.”

The revived focus by HMRC on existing resources or regulations to tackle non-compliant umbrellas has got one of its former inspectors suspecting today’s amendments won’t succeed.

'Government believes it's done enough'

Declining to be named, the ex-Revenue officer said: “I suspect that the government believes it has done enough to protect workers’ rights through its ‘policy of robust regulation.’

“HMT will probably rebuff the amendments by saying, or at least thinking that it wants to see that take effect first, before getting into considering further legislative measures.”

Successful or not, in the eyes of another former HMRC official, Mr Davis’ amendments will still leave both tax authority and taxpayer in a big mess.

“If you [HMRC] write flawed legislation, stick patches on it, push it through the public sector, write more flawed legislation and stick it on the private sector, it ain’t gonna work,” the ex-official said.

'Formal brolly regs well overdue'

By contrast to the Finance Bill amendments to tackle umbrellas, support for the Poyser-Seeley Harris package to do the same - albeit with much more of a focus on protecting contractors who use umbrellas - appears to be universal.

And not just among contractors but by the very parties which are the targets of new regulation – umbrella companies themselves.

“Formal regulation of the umbrella industry is well overdue,” says Damon Cochrane, operations director at Orange Genie Umbrella.

“We welcome any changes that will protect hirers, recruitment agencies and contractors from non-compliant umbrella models. These non-compliant models tarnish the reputation and the good work being carried out by many umbrellas”.

'A good step in the right direction'

Seeing the prospect of regulation similarly is Del Williams, a director at JSA Services, which owns both JSA Umbrella and Liberty Bishop.

“We are completely supportive of calls for a more regulated umbrella company working industry,” he says. “We regard the work which Rebecca Seeley Harris is doing as a good step in the right direction.”

In her ‘Umbrella Companies: Call for Regulation,’ the government is called to “clearly establish” if the Agency Conduct Regs or another framework is needed to “ensure compliance of the [UK’s] umbrella companies and other intermediaries.”

'Appropriate enforcement'

The government is further told to decide whether the previously proposed Single Enforcement Body or the Employment Agencies Standards Inspectorate would be “the most appropriate enforcement body.”

And add Ms Seeley Harris and Mr Poyser, on top of hiring a Labour Market Enforcement director to oversee the desirable body, the government ought to consider if brollies and other intermediaries need licensing.  

Three additional policy recommendations make up the duo’s seven-proposal package.

First, for alternative, possibly not-for-profit umbrella models to be explored; for HMRC or the like to help umbrella workers recover holiday pay, and third, for any new legislation to protect workers and their rights.

'A cut above'

“All calls for regulating the umbrella industry get my support but this [policy package] is a cut above,” says Parasol’s technical commercial manager Joanne Harris, who writes exclusively on the subject for ContractorUK tomorrow.

“We feel very supportive of this draft policy. The 31-page document appears to be a very well thought-out and sensible paper.”

Recruitment agency boss Matt Collingwood is another supporter of the package, although he doubts licensing umbrellas would encourage “education, understanding and transparency,” he said.  

'Contractors at risk'

Either way, fresh from his prediction that a fallout for umbrellas is on the horizon, the VIQU boss says something needs to change.

“There is clear evidence that umbrella companies have been able to get away with putting contractors at risk for far too long, and it needs to stop,” Mr Collingwood says.

“I would like to stress that there are many ethical and customer-centric umbrella companies out there. However, there are also a hell of a lot of questionable,  even bogus umbrellas [too]”.

'Complicit in contractor abuse'

“The government and HMRC have been aware of [all the issues around umbrellas] for a long time now, which means that they have been complicit in the abuses that befall contractors - not acceptable,” agreed Orca Pay Group CEO Robert Sharp, writing on LinkedIn.

He added: “The temporary recruitment market is a £30bn-plus industry, and the fact that the government has left this unregulated for so long now borders on outright negligence.”

Trying to strike a more measured tone to the government, specifically in a letter to Mr Norman urging him to consider and review her package with Mr Poyser, Ms Seeley Harris states:

'It's worrying, so just get it done'

“As of 6th April 2021, they [umbrella companies] have been used increasingly because of the reforms to the off-payroll legislation to include the private sector.

“This is a worrying development because the umbrella company sector is unregulated and there are signs of large-scale non-compliance.”

Afterwards, online, the former Treasury adviser was more plain speaking, explaining she had written directly to the financial secretary as well as submitting the package to him and his boss Mr Sunak, because “the government is not moving quickly enough” and they should just “get it done.”