Fresh inaction on umbrella companies by the government leaves contractors continually vulnerable

Not for the first time, the contractor umbrella company sector's hopes for substantive government action to tackle rampant tax avoidance within the sector have been dashed, writes Crawford Temple, CEO of compliance organisation Professional Passport.

The statement made by the government on Tax Administration and Maintenance Day outlining future plans for umbrellas was frustratingly vague, and lacked any firm commitments to crackdown on the criminal operators at large.

Delay and dithering

The endless delays and dithering allowing these schemes to proliferate unchecked is exasperating.

However, my deeper concern lies with contractors being systematically exploited by dodgy umbrella companies through deceptive tax avoidance arrangements. 

Despite acknowledging that non-compliance has a “detrimental impact” on workers and the labour market, the government's feeble response on Thursday included no new meaningful protections for temporary workers.

Government rationale is gobsmacking

The suggestion in the statement of an optional "pay checking tool" is farcical. Expecting vulnerable contractors to effectively regulate and audit themselves against criminal enterprises designed to confuse and mislead is simply gobsmacking.

These tax avoidance schemes market themselves as legitimate, bonafide umbrella companies, luring workers through promises of unrealistically high take-home pay. By the time contractors realise they have been trapped in unlawful arrangements, they've already been fleeced of huge sum, often diverted into offshore accounts, and they face potential tax bills from HMRC, potentially running into the tens of thousands of pounds later down the line. 

You wouldn’t know it from the statement which the government put out on April 18th, but the scale of abuse is staggering.

In fact, there’s billions of pounds being siphoned from the Treasury annually by these criminals.

However, their activities continue unchecked as the government engages in endless consultation and deferral rather than taking decisive steps to address it.

Not a single meaningful reform in over two years of this staggering abuse

For over two years, since the initial call for evidence into these unethical practices which prey on contractors, not a single meaningful reform or enforcement measure has been implemented in the umbrella company sector, despite HMRC holding all the necessary data it needs to find the criminals and shut them down.

More investment into enforcement measures is clearly needed.

But the government is dragging its feet on making such commitments, paying mere lip service to being “minded” (as it said on Thursday) about potential ‘due diligence’ requirements – requirements that experts have already dismissed as toothless half-measures because they can be easily evaded. 

Any due diligence requirement will mean that the supply chain will be left to self-police itself which, as we have seen with the off-payroll working legislation, will open more doors for abuse to thrive.

My final message to this do-nothing government

It is far past time for forceful action to purge these unscrupulous elements from the umbrella industry once and for all, before even more livelihoods are permanently derailed. Contractors deserve better protection than the hollow commitments of a do-nothing government unwilling to earnestly confront this egregious abuse. With a general election on the horizon, the baton to tackle this tax avoidance will undoubtedly be passed on to a new government in waiting, and that is called passing the buck.