Yesterday (Tuesday, 4th March), the UK Government released its consultation outcome and response to its Tackling non-compliance in the umbrella company market consultation paper.
The consultation, which ran from June to August 2023, aimed to identify the most effective ways to address tax and employment rights non-compliance issues by umbrella companies.
Option 3 Appears to be the Government’s Preference
The government proposed three options for tackling tax non-compliance in the contingent labour market.
- Mandating due diligence
- Transfer of tax debt that cannot be collected from an umbrella company to another party in the supply chain
- Deeming the employment business which supplies the worker to the end client to be the employer for tax purposes where the worker is employed by an umbrella company, moving the responsibility to operate PAYE
In yesterday’s published outcome document, the government confirmed its preference for option three by committing to “introduce legislation to move the responsibility for accounting for PAYE from the umbrella company to the agency that contracts with the end client to supply the worker’s services. In the event that there is no such agency in a labour supply chain, which is expected to be a minority of cases, this responsibility will be placed on the end client. The measure will take effect from April 2026.”
What Does Option 3 Mean for Agencies and End Clients?
In short, this change in legislation will mean that umbrella companies are no longer legally responsible for accounting for PAYE. Responsibility and liability for unpaid taxes and NI will shift to the agency that supplies the worker or, if no agency is involved, to the end client.
Agencies will still be able to use umbrella companies to pay their contractors; they will just retain the risk and responsibility for PAYE.
The government hopes implementing this change will encourage agencies to work only with compliant umbrella companies and help eradicate tax non-compliance issues that blight the sector.
A Huge Step in the Right Direction for Compliance
At Big Fish, we’re delighted to hear that the government has committed to taking action against the non-compliant businesses that plague our industry and profit illegally at the expense of hard-working contractors.
As one of the UK’s most accredited umbrella companies, we will embrace the opportunity to demonstrate how our FCSA and Professional Passport accreditations hold us to account to meet the highest industry standards of service and compliance.
In addition, our SafeRec umbrella certification provides independent, real-time audits of every payslip we produce with audit reporting functionality that addresses the need for transparency throughout the labour supply chain.
Progressing with Option 3 is a huge step in the right direction for compliance in our sector. Contractors, agencies, and end clients who take a zero-tolerance approach to non-compliance will significantly benefit from partnering with accredited suppliers like Big Fish.