Off-payroll working rules have resulted in an increased use of umbrella companies
10 February 2022
The Government's extension of off-payroll working rules to the private sector in April 2021 appear to have resulted in an increased use of umbrella companies (companies that employ temporary workers or contractors whose services they contract out to client organisations for a fee).
This is increasing the risk that some individuals, particularly those on low incomes, will use rogue umbrella companies. The work HMRC has been doing to counter rogue umbrella companies needs greater urgency.
The external research commissioned by HMRC into the implementation and impact of the extension of the off-payroll rules in the private sector should be accelerated and made more comprehensive and its findings published in full.
The Government must take a more coherent approach to the issue of employment status, which considers both tax and employment rights. It is unfair that individuals are treated as employees for tax purposes but without the rights which are normally associated with employment. To address this, the Government should press ahead with implementing the proposals set out in the Taylor Review of Modern Working Practices.
These are the main findings and conclusions set out by the House of Lords Economic Affairs Finance Bill Sub-Committee in a letter to the Government after holding follow-up evidence sessions on the off-payroll working rules in December 2021.
Lord Bridges of Headley, Chair of the House of Lords Economic Affairs Finance Bill Sub-Committee, said:
“The whole point of the off-payroll reforms was to crack down on tax avoidance. Yet, as we warned the Government in our Sub-Committee’s report in 2020, it risks giving rise to a new wave of tax avoidance, as people — many of them on low incomes — end up in rogue umbrella companies. The Government must take action to protect workers from ‘rogue’ operators as a matter of urgency.
“It is right that HMRC commissions external research into the impact of these off-payroll rules. But by only focusing on engagers, it will only get half the story. Its scope needs to be widened to include contractors — and needs to be carried out more quickly.
“The Government has said it is committed to fairness in the workplace. However, it is unfair for individuals to be treated as employees for tax purposes without having employment rights. Our Sub-Committee reiterates the call we made in our 2020 report for the Government to press ahead with implementing the proposals set out in the Taylor Review.”
