Government plans crackdown on
The Treasury is seeking input on how to improve protection for contractors that utilise umbrella businesses by establishing a legal framework and examining the procedures for paying employees and tax obligations.
There are widespread worries that independent contractors are being tricked into joining umbrella businesses and frequently receive harsh tax bills as a result of third party agents’ non-compliance, which costs the UK some £400 million annually.
Although the government rejected proposals to outright prohibit umbrella companies, saying that such a move would not be a “proportionate response,” stricter legislation will be enacted to control the industry.
Typically, while employees work for the clients of the agency, the umbrella firm hires people and pays their salary via the PAYE system. Up to 1.7 million temporary employees are thought to be employed in the UK, and many of them find work through employment intermediaries.
In order to ensure that the agencies are protected by any applicable laws, the consultation considers options to govern the umbrella company market by giving them a legal foundation and a precise description. Additionally, it contemplates expanding workers’ employment rights as well as countermeasures against noncompliance including required due diligence.
The introduction of a mandatory due diligence requirement would be supported by penalties applying to those employment businesses or end clients that do not comply. This requirement could sit with the employment business or the end client depending on the specific arrangements of the contract.
The employment business would be held responsible for ensuring that the prohibition on other models of employment or engagement and payment were adhered to, but would allow a potential due diligence defence where they can demonstrate they have taken all reasonable steps to ensure that the permitted method of engagement was being used. It is likely that the government would authorise the Employment Agency Standards (EAS) Inspectorate to regulate umbrella companies as it already has powers of enforcement and can make onsite visits to those covered by its remit.
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