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Broken umbrella AccountingWEB Government leaves umbrella industry in the rain
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Government leaves umbrella industry out in the rain

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The umbrella industry eagerly awaited the government's plans to crack down on rampant tax avoidance schemes in the run-up to this year's Tax Administration and Maintenance (TAM) Day. However, the meagre statement has left the industry disappointed and frustrated at the continued lack of urgency and decisive action.

23rd Apr 2024
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Instead of fireworks, we got a damp squib and the industry has not received the reassurance it desperately needed when it comes to the government's plans to tackle tax avoidance. The government's track record of delayed action has once again played out and does not inspire confidence that a clear, decisive plan will be presented any time soon.

Thursday’s statement simply reiterated the government's ongoing "concern" about non-compliance in the umbrella market and its detrimental impact on workers, taxpayers and the labour market. 

It vaguely mentioned publishing a response to last summer's consultation "in due course" and releasing new guidance for workers later this year, including an online paycheck tool. Perhaps most substantively, it stated the government is "minded to introduce a due diligence requirement to drive out bad actors from labour supply chains” and plans to engage further with stakeholders on the details. 

Increasing frustrations

For an industry that has been grappling with a crisis of systematic tax avoidance schemes and non-compliant umbrellas for years, this amounted to an utterly underwhelming response from the government.

The government's chronic inaction has enabled the flagrant abuse of tax laws by unscrupulous umbrella companies to persist unabated. Despite endless consultations, evidence sessions and forums over the past two years specifically examining exploitative umbrella practices, not a single meaningful enforcement measure has been implemented.

This lack of enforcement and firm regulatory oversight has profoundly distorted the market landscape. Compliant, ethical umbrella firms have been placed at a drastic competitive disadvantage while shadier rivals gain an unfair edge by shamelessly skirting their tax obligations. 

Whilst the government says it will introduce a due diligence requirement, I would like to suggest that in an unregulated environment, the “bad actors” identified will simply find a way to continue to avoid their tax obligations.

Due diligence requirements could also see the government passing the buck, once again expecting the supply chain to self-police itself which as we know from the changes to off-payroll, has exacerbated non-compliance and not helped. It’s a high-risk strategy that would simply provide a road map for the non-compliant operators to navigate and find a way to thrive.

Not good enough 

The scale of tax avoidance is staggering, running into billions of pounds. Yet the government continues to turn a blind eye, proposing half-measures like a voluntary online paycheck tool that places the burden on exploited workers to self-police rather than implementing robust enforcement policies. 

It’s another hands-off approach by an apathetic government that is dragging its heels on an issue of paramount importance and the exasperation running through the industry is palpable.

The umbrella industry has run out of patience and this year's Tax Administration and Maintenance Day marked another deeply disheartening reminder that comprehensive reform remains firmly kicked into the long grass, with no decisive action in sight. 

With a general election on the horizon, the baton to tackle tax avoidance will undoubtedly be passed on to a new government in waiting. That is simply not good enough.

Replies (3)

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By FactChecker
23rd Apr 2024 22:29

What exactly do "Compliant, ethical umbrella firms" provide - in terms of benefits to ERs, to EEs or to society/businesses/the economy as a whole?

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David Ross
By davidross
24th Apr 2024 10:40

Boo Hoo. No sympathy for these scumbags

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By John Wheeley
24th Apr 2024 12:18

I always wondered how a legitimate umbrella company can save loads of tax/NI. Can anyone enlighten me please? What is the advantage of an umbrella over an ordinary company?

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