Umbrella consultation replies are now in and with officials. What happens next?

Just over 12 weeks ago, HMRC, HMT and the Department for Business & Trade published their initial proposals setting out changes that might be made to tackle non-compliance in the umbrella company market, writes Victoria Todd, head of the Low Incomes Tax Reform Group (LITRG).

A long way, and a long time

We welcomed the proposals, saying we thought they were strong options for tackling non-compliance and that some of the tax options could go a long way to addressing our longstanding and serious worries about disguised remuneration, which continues to hit contractors.

One of the key points we made was that it has taken a long time to get to this point and decisions now need to be made and implemented speedily. Here, exclusively for ContractorUK, I want to look at what might happen next and the factors that may impact those next steps.

We’re probably only at ‘Stage One’…

The consultation closed on August 29th 2023. Although it does not expressly state it in the consultation, this appears to be a ‘stage 1’ consultation -- setting out objectives and identifying options. The next step will be for the officials to review and consider all the submissions and publish a summary of responses.

But when can we expect this to summary to be published? Well, even with the best will in the world, this may not be for some time.

Five factors affecting how long contractors must wait for clarity on umbrella companies

Although every consultation is different, some of the factors that could affect how long contractors and their umbrella companies have to wait, are:

1. Number of consultation responses

From the number of bodies that responded to the call for evidence (by HMT in December 2021), we think that there will be significant number of responses for officials to read and consider. In line with the government consultation principles, they should also consider comments made in roundtable meetings held for the umbrella company consultation, even if these weren’t followed up in writing.

Those interested in umbrella companies tend to be very passionate. So responses may be long, complex; may convey strong feelings about certain aspects, or put forward new ideas as to how the objectives can be achieved in a better, simpler or more proportionate way. We expect each and every respnse to be read, perhaps more than once and by multiple people.

2. Analysis

All responses are likely to be coming at the consultation from different angles.

For example, some agencies and umbrellas and those who advise or represent them may have concerns about the direction of travel Other respondents, such as unions, are likely to provide vital context around lower paid agency workers, while tax professionals will likely have technical details and/or bigger picture ‘trust in the system’ issues in mind. Also likely to respond, the ‘Big 4’ or other accountancy firms may have commercial insight and/or may respond from the perspective of end-clients who want their voices heard.

The consultation’s officials will also have to digest insights from other pockets of expertise, including groups who want to take the opportunity to highlight separate, albeit connected issues.

So officials will need to look carefully at all the comments submitted and all the arguments made, create summaries of the responses, and analyse them. Common themes, emerging findings and difficult decision areas will no doubt be discussed at length, before hopefully a leading policy proposal will present itself.

3. Develop a proposal recommendation

From the feedback we have heard from those who have attended the consultation’s roundtables, the officials in attendance do appear to have been in ‘listening mode’ with no predetermined outcome.

However, it is important to remember that the departments involved don’t make law. Any decision will be made by the minister at a strategic level (although based on advice from their officials). Once a ministerial decision is made, the chosen policy proposal may be consulted on again -- at a more detailed level. There may be a technical consultation on any draft legislation, in addition.

4. The fiscal framework

HM Treasury and HM Revenue & Customs operate to a regular, fiscal timeframe.

Each year there are typically two fiscal events that they can aim for in terms of announcing policy or legislative measures (although in line with previous commitments, this should really one be one). The next one can be expected at Autumn 2023. But if this is too ambitious, then there is a possibility in the spring of next year, at Spring Budget 2024.

The concern is that there may be a general election around that time, meaning civil servants must go into a pre-election period of sensitivity known as ‘purdah’. Government priorities can also change in the run-up to a general election.

And if, as expected, there is a general election, then any change in government will of course have an impact on how any work in this area develops! Even if the same government is elected, priorities and focus can change.

5. The cross-government nature of the consultation

It is important to remember that the consultation is a joint HMT-HMRC-DBT venture. There is specific Employment Agency Standards Inspectorate interest too, which means that the Director of Labour Market Enforcement may need to be involved.

Remember, each department has its own policy leads that will take ownership of their parts of the consultation related to their area. They will need to interact and will need to make sure that whatever they come up with individually, also adds up to a coherent and workable overall position.

It is worth noting that DBT/EAS do not have the same minister as HMRC/HMT and also do not have the same fiscal framework to work to.

As you can see, this isn’t a consultation for the impatient (who’ve been kept waiting a while already)

The bottom line? Any changes to umbrella companies and the umbrella market as whole are some way off yet. We’d go so far as to caution the impatient that the relevant government departments have got plenty of work to do before any policy proposal can be ready.

But not being able to be hasty is perhaps okay. The objective here is to come up with something that will deliver improved outcome for umbrella company workers; that supports a level-playing-field and that protects the Exchequer. It is therefore important that time is taken to develop proposals that meet these objectives. And we think these objectives are hard to argue with and so hope all interested parties fully engage in any other opportunities that arise to help make the proposals the best they can be.