IR35 tax changes were launched on April 6 and the new payroll rules will force companies to determine the tax status of contractors they hire. Many experts have warned this will raise costs and damage self-employment prospects going forward.
Mr Temple continued: “The new Off-Payroll rules are due to take effect in just a matter of weeks and we are likely to see more contractors being required to work through umbrella companies.
“But, we know from a survey IR35 Shield conducted amongst some 3,000 contractors that only eight percent of contractors would be happy to use an umbrella.
“I would urge contractors with no choice to ask questions and conduct their own due diligence to ensure that they understand the terms and conditions of the contract between them and the umbrella and are working through an accredited provider.
“A recruitment agency should provide contractors with an approved list of umbrella providers to choose from.”
The usage of umbrella companies came up again recently as the Finance Bill (which is currently being reviewed in the House of Commons) was debated in Parliament.
Brexit’s secret weapon: Digital pound could revolutionise UK [INSIGHT]
IR35: Off-payroll tax guidance issued as ‘wild west’ needs fixing [EXPERT]
Self-employed to be hit at ‘worst possible time’ as tax rules change [WARNING]
Ruth Cadbury, the Labour MP for Brentford and Isleworth and Officer for the Loan Charge All-Party Parliamentary Group (APPG), called for the Government to take action: “I want to focus on sections relating to contractors.
“The Loan Charge APPG has just published a comprehensive report into how contracting should work, this report found that the unintended consequences of IR35 and off-payroll legislation has been a proliferation of umbrella companies, some of which have pushed people into disguised remuneration schemes.
“The report also exposed significant malpractice including withholding of holiday pay, kickbacks for recommending or passing on contractors, even including providing fitted kitchens and holidays for recruitment agency directors.
“We concluded that we need legislative changes in and beyond this bill, including aligning tax and employment law.
“But there’s a real opportunity in this Finance bill to address some of the specific concerns, clause 21 in the bill deals with ‘worker services provided through intermediaries’ and it had been described in the explanatory notes as ‘addressing an unintended widening of the conditions which determine when a company is an intermediary’.
“But actually this is a change following lobbying efforts by umbrella companies, the legislation, as originally drafted, would have meant that the recruitment agencies would have to put workers on their own payroll, where they would also have enjoyed the protection protections offered by existing agency legislation, and this would have also meant closing the door on tax avoidance schemes.
“But now that door has swung wide open again, which is a very odd thing to be doing while at the same time as claiming it to the Government intends to clamp down on tax avoidance schemes. The Government could simply strike out clause 21, which would then ensure workers got the agency rights, they should be getting agencies can run their own payroll, they do for their own staff anyway, they do not need umbrella companies, and neither do their contractors or the Government could redraft clause 21 To seek to stop the exploitation.”
“The alternative option is to update the existing Finance Bill to rule out skulduggery, and make all umbrellas operate on a level playing field.
“That would be the more sensible way forward, and there are some options that might be possible.
“This was the second reading of the Bill, so any changes or amendments, would be put forward at the Report Stage.
“So, we will know for certain after that point what’s likely to be the final outcome.”
Additionally, Mr Temple also responded to the calls for change: “Closing down a whole sector that provides such crucial support to the entire contingent workforce would be an over-reaction. We agree with Ruth Cadbury and have indeed been making the point to HMRC for many years that limiting the ability of disguised remuneration and non-compliant operators to enter the market is essential.
“However, the proliferation of these arrangements is a direct consequence of ill-thought through legislation with the responsible stakeholders in the sector all aligned on highlighting these problems in their responses to previous consultations that have been ignored.
“The report issued last week following the Loan Charge APPG’s inquiry stated that … ‘The Treasury effectively dismissed the Committee report out of hand….The way that Government currently ignores such reports and rejects most (if not all)recommendations is troubling and this is proving a demonstrable weakness in our system as any Parliamentary oversight of Government is simply being sidestepped.’
“Ms Cadbury herself said, ’There is significant non-compliance in the worryingly opaque supply chain, which has been dubbed ‘the Wild West’ as a result and the lack of regulation enables exploitative practices, as well as enabling promoters of tax avoidance schemes to operate. If it is serious about clamping down on tax avoidance schemes, the Government must legislate to clean up the supply chain and proactively stop schemes as they start…’.
“And, in his Good Work Report, Matthew Taylor also made the point, ’We have heard from some who would like to see umbrella companies removed from the supply chain altogether. However, we do not believe this is a proportionate response to the issues faced…’
“I would suggest that a collegiate and joined-up approach is what is needed right now to drive up standards and stamp out the unethical practices that are giving the entire sector a bad name.”