Following the call for evidence in late 2021 and early 2022, the government has subsequently opened a consultation paper on proposals for regulation in the umbrella company market. According to the government, the consultation has three main objectives:
- To deliver improved outcomes for workers (contractors).
- To support a level playing field in the umbrella company market.
- To protect taxpayers from the significant revenue losses that currently arise from non-compliance.
While the consultation paper remains open until the 29th of August, the government did include some proposals for consideration, which will interest employment businesses.
Umbrella consultation paper proposals include penalties for employment businesses.
The consultation, titled Tackling non-compliance in the umbrella company market, included two strategic options for preventing tax non-compliance within the umbrella company market that could have significant implications for employment businesses.
One option was to introduce a mandatory due diligence requirement, with penalties for employment businesses or end clients that do not comply.
The other is to legislate to give HMRC the power to collect an umbrella company tax debt from another business in the labour supply chain, in specified circumstances. This would encourage employment businesses and end clients to be more selective in the umbrella companies they contract with by making them potentially liable for unpaid tax debts in the event of non-compliant behaviour by the umbrella company.
Should either of these proposals be introduced, agencies would need to significantly increase due-diligence activities to minimise any risk of working with umbrella suppliers.
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