There is an ongoing consultation on the regulation of the umbrella industry. Proposals within this could have a significant effect on an employment business’s operations and potential liabilities. These include proposals for mandatory due diligence, the transfer of umbrella tax debts and even employment businesses operating as the employer of umbrella workers for tax purposes.
The name of the current consultation ‘Tackling non-compliance in the umbrella company market’ suggests that the subject is the regulation of umbrella companies. However, the proposals, if adopted, will directly impact the operations of recruitment supply businesses. Do recruitment businesses want more rules and risks?
The government has published the long awaited consultation on regulation of the umbrella industry. Entitled “Tackling non compliance in the umbrella company market” the consultation seeks to address both employment rights abuses and tax non compliance by umbrella companies.
There have been a few cases in the public eye recently relating to employment status such as the Amazon drivers case which we discussed in April (see article here). This indicates that the ground on which status is based could be shifting, so why is that important for recruiters?
Last week it was reported that UK Research and Innovation, a public sector body, was required to pay £36m to HMRC for unpaid levels of IR35 tax. This is reported to have followed an investigation into 285 contractors engaged by UKRI as monitoring and assessment officers, and it follows a string of reports of government bodies being caught for not addressing IR35 correctly.
Supplying temporary workers has always been a minefield in terms of compliance, and since the IR35 rules changed in April 2021 this has become even more complex. Two years on, and businesses are still grappling with whether to take the risk of IR35 or avoid IR35 altogether by engaging the agency workers directly or via an umbrella company.
In May 2008 we reported on the Court of Appeal case of James v Greenwich. This case set the tone thereafter as the Appeal Court clarified in summary that agency workers will not normally be regarded as implied employees of the hirer unless they work in a way not reflected in the worker’s agreement with the agency. Both hirers and agencies have relied on this case ever since.
The First-tier Tax Tribunal decided that Mr. Lineker had a direct contract with the BBC and BT Sport and therefore the IR35 rules do not apply. On the face of it this seems a bizarre outcome since Mr. Lineker had, and operated through, a partnership with his former wife. Any student of IR35 will know that IR35 is the common name used to refer to the ‘Intermediaries legislation’ – addressing tax avoidance through the use of intermediaries and that a partnership is stated to be an intermediary. Further where there is a contract between the client and an intermediary for the personal services of the individual, Mr. Lineker in this case, the IR35 rules apply so requiring a hypothetical employment status assessment of the individual to client relationship. So how did the tribunal reach its conclusion?
Umbrella companies regularly play an integral role within the recruitment industry supply chains, offering businesses payroll solutions. These companies do not always receive the best press, with links to non-compliance and scandals over tax avoidance. However, rather than allowing uncertainty to affect the way your business uses these third-party companies, we offer you the chance to understand the risks whilst reaping the rewards.
The Association of Recruitment Consultancies (ARC) has commented on the budget as follows:
Commenting on the latest budget statement, Adrian Marlowe, Chairman of the Association, said: “The Chancellor’s statement on 16th March is largely to be welcomed. In particular we welcome all the measures to bring more people into work, whether younger or older, not only given the scale of the labour shortages in the UK but also for our collective social well being. This should benefit the employment sector as well as those currently out of work.
