Umbrella company consultation: HMRC’s stakeholder roundtable went like this…

In the last few weeks, HMRC has rightly been holding roundtable events for discussions over the government’s umbrella company regulation consultation.

Well, we were lucky enough to be invited to attend one of the sessions, to go through our initial thoughts on what the consultation proposes, writes Lucy Smith of Clarity Umbrella.

Patchy, at best

But before we could even get started, we were dismayed to notice that in a meeting room set up to accommodate 25 people, it ended up with a total attendance of only four people.

With such a poor turnout, I can understand why the taxman apparently asked at a busier but still underattended roundtable prior to mine, whether umbrellas really do want regulation.

The truth is; this consultation could be a game-changer for an industry which has been riddled with bad press over the years because of the actions of a few bad actors.

More than just a talking shop

But let’s get back in the room. From the government’s side, we met the team who has put together the consultation; met officials responsible for anti-avoidance measures, and met members of the government’s employment status team. In short, we were a little outnumbered!

However I’m pleased to say that we absolutely got to have our say, and were able to go through our thoughts on the umbrella consultation, both positive and negative.

My belief is that the intention from government is here -- and was on display in the room -- to help create a safer umbrella market, with greater transparency for contractors using umbrellas.

‘Umbrella company’ definition

So it’s hard not to see the consultation and the meetings as a great step in the right direction. How exactly the legislation gets drawn up without creating loopholes, is another story.

Now to the details. The definition of an ‘umbrella company’, in my view, plays one of the most important parts of the proposed regulation.

At present the wording is reliant on there being a recruitment agency involved in the chain, which is most certainly not the case in many situations.

Proposals recap

The umbrella consultation proposes three options for regulation:

Option 1 – Mandating Due Diligence

This was of definite interest to the attending HMRC officials, yet the discussions still looked heavily at how this would look in practice, and what would constitute “due diligence”.

Without an “umbrella compliance manual”, we were told there would be a need for substantial guidance for the recruitment industry, on what it is they should look for.

Option 2 - Transfer of tax debt

The second option concerns the transfer of a tax debt that cannot be collected from an umbrella company to another party in the supply chain.

I think most people in the umbrella company industry (including its advisers) believe that this option is highly likely to become part of the proposals – even at this semi-early stage with the consultation still open.

However, this ‘transfer’ would need to be accompanied by a demonstration of ‘due diligence.’ Is it fair to transfer this right down the supply chain to the end-client? I’m not sure that it is. And reassuringly for end-clients, this potential unfairness for them was touched upon during the meeting.

Option 3 – Prevent umbrellas handling gross funds

This option rests on deeming the employment business which supplies the worker to the end-client to be the employer for tax purposes, where the worker is employed by an umbrella company, thereby moving the responsibility to operate PAYE.

‘Unintended consequences’

The general consensus was that this proposal is more likely to cause ‘unintended consequences’ for the industry.

For that reason alone, it did not seem to fall high on the agenda of the attending officials.

Away from any of the specific options, much of the conversation centred on future umbrella compliance being related to tax avoidance schemes which, as highlighted in the meeting, should be a simple fix given HMRC has access to figures thanks to the Agency Reporting Requirements and RTI submission-data from umbrellas.

Not that simple, claimed HMRC

When the Revenue’s representatives were questioned on this though, it came back as a bit of a moot point, getting deemed ‘not that simple.’ This response was a little difficult to understand given the providers in the marketplace are now complying on both these HMRC fronts!

It begs the question; is this brolly consultation just about stamping out tax avoidance? No it’s not. Or at least I hope it’s not! The regulation our umbrella sector is seeking needs to go a step further and create a level-playing field for umbrellas, with the effect that those umbrellas trying to operate compliantly are not penalised or put at any disadvantage.

As is the case with most government consultations, it is worth asking  -- has there already been a decision taken, as to what the legislative outcome will be?

Once bitten…

My take is that it is indeed highly likely that decisions have already been made – but fortunately, how the outcome looks, precisely, is likely to be determined with input from stakeholders. The government clearly doesn’t want ‘unintended consequences’ to come out of such changes – maybe IR35 reform did enough of that to last them a lifetime.

Therefore anything we in the umbrella industry can do has to be worth a shot. To that end, I remind you -- written responses to the consultation are due no later than August 29th.

Final thought

For those individuals who genuinely want to see a change, so government can provide a more level-playing field -- even paving the way for the brolly industry to operate in a more transparent manner, I urge you to respond. This is never going to be a quick process, but we have the opportunity to speak up and if we don't, it will be lost forever.