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ICAEW suggests that the off payroll working problem, which has led to the increase in the use of umbrella companies by employment intermediaries, could be resolved by eliminating opportunities for arbitrage that arise from rates of tax and NIC being different depending on employment status for tax.
Many organisations in the private and public sectors use employment intermediaries to provide a flexible workforce and umbrella companies are increasingly being used to employ workers provided by employment intermediaries. However, organised crime groups (OCGs) are using umbrella companies to exploit the UK tax system and employees. OCGs can flourish and undercut complaint operators because of ineffectual policy and inadequate enforcement by the government of employee rights, tax rules and company law.
The off payroll working problem could be permanently resolved if the total amount of tax and national insurance contributions (NIC) payable by individuals and the engagers of workers was the same or similar across all sources of income and did not vary between those who the tax system currently treats as employees and as self-employed.
ICAEW’s Tax Faculty expressed this view in ICAEW REP 81/23 in response to the consultation Tackling non-compliance in the umbrella company market published on 6 June by HM Treasury, HMRC and the Department for Business & Trade (DBT). This repeats what the Tax Faculty has said on previous occasions.
Pending a long-term solution, the options in the consultation document for regulating umbrella companies to tackle tax and employment law non-compliance in the contingent labour market, as well as the abuse of the VAT flat rate scheme and employment allowance, are not mutually exclusive and the government could introduce a combination. However, any changes need to be:
- given legal vires by way of primary legislation that contains appropriate safeguards;
- underpinned by clear guidance; and
- firmly and fairly enforced by HMRC, DBT, and other relevant government departments.
ICAEW also responded that it needs to be easier for employees to enforce their employment rights. There should also be a single employment rights enforcement body as proposed previously by government.
The records at Companies House also need to be substantially improved to facilitate the identification of associated companies, multiple directorships, etc.
ICAEW’s Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
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