Government told silence would be better than its 'nothing' update on contractor umbrella company regulation

Contractors in IT are dejected about an official update on umbrella companies -- if their advisers’ responses are anything to go by.

Rather than a full plan on how umbrellas will be regulated to protect their users, the government has unveiled just a few paragraphs.  

Chris Bryce, of the Freelancer & Contractor Services Association, put it the most politely out of the advisories who spoke to Free-Work.

'Thin'

The FCSA’s CEO, Mr Bryce described the announcement on Thursday (Tax Administration & Maintenance day) as a “little thin on detail”.

Bryce was referring to the 160 words from the government on brolly regulation – its first reply since it shut a consultation on it in August.

“The government remains concerned about the scale of non-compliance in the umbrella company market, and the detrimental impact that this has on workers, taxpayers and the labour market,” the government response begins.

“Last summer, the government consulted on options to reduce tax non-compliance in the market and will publish a response to its consultation in due course.”

'Due diligence requirement to drive out bad umbrella actors'

Published by HMRC, the government’s response continues: “To support workers and businesses that use umbrella companies, HMRC will publish new guidance later this year, including an online pay checking tool to help umbrella company workers to check whether the correct deductions are being made from their pay.”

In the third, final paragraph, the HMRC policy paper concludes: “The government is minded to introduce a due diligence requirement to drive out bad actors from labour supply chains.

“To this end it will continue to engage with the recruitment industry and other key stakeholders on the detail of a statutory due diligence regime for businesses that use umbrella companies, and ensure it has the best understanding of the impacts that this could have on reducing non-compliance.”

'Feeble response'

Crawford Temple is the CEO of Professional Passport which, like the FCSA, vets umbrella companies for compliance but, also like FCSA, only where they open their doors voluntarily.  

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

Making this attack and others on the government’s response in an op-ed today for ContractorUK, Temple is correct to say that there was nothing substantively new.

'It's better to say nothing than spend 1,000 words saying nothing'

The due diligence requirement (specified by the government in its third paragraph) was one of three proposals in the June 2022 consultation.  

“[Thursday’s umbrella company] announcement can be summarised with a quote credited to entrepreneur Richard Branson,” Contractor Voice, a campaigner for umbrella contractors began to Free-Work.

“And it’s this – ‘It’s better to say nothing than spend 1,000 words saying nothing!’”

'Stricter consequences'

Contractor Voice’s Jacob Bellas believes instead of talking up the “very little action” it might take, government may be better off going back to square one.

In fact, Bellas says the IT umbrella contractor industry as a whole is ‘longing and hoping for’ what he called “stricter consequences”.

Alex Fraser of Compass Contracting and Employment agrees that the government should look at a stronger fix to the ‘problem’ of umbrella companies.

'Mandatory registration'

“The suspicion is that an understaffed HMRC is unable to provide the type of mandatory registration and policing that most compliant providers would prefer,” Mr Fraser, Compass’s CIO told Free-Work.

“The example of the Information Commissioner’s Office and its policing of personal data processing indicates that a self-funded regulatory body for the umbrella industry could work.

“Abolishing the Apprenticeship Levy for umbrella providers -- remember, contract workers rarely benefit from the current training pot -- and putting in place a levy to establish and run an umbrella regulatory body means the scheme could be self-funded.”

'No barriers to entry to the umbrella company market'

Fraser isn’t alone in believing the due diligence requirement which the government is “minded to” adopt, might not cut it.

“There are no barriers to entry to the umbrella market, which means that setting up a corporate entity and launching an umbrella company can be done in a matter of days,” says a concerned Tania Bowers of APSCo.

“We believe that a licencing or registration process is required, with Employment Agency Standards Inspectorate or another body, in recognition that financial wrongdoing is the largest risk to workers and the supply chain. 

“Further, industry self-regulation should be replaced with statutory compliance codes for the umbrella sector itself.”

'Contractors deserve better'

Whether it’s codes, licensing, or registration, the government just needs to get on and regulate – but regulate right from day one.

Clearly losing patience with the dragging of feet on umbrella company regulation, Professional Passport’s Mr Temple explained his diagnosis: “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”.