As we approach the Spring Budget, I have one request for the Chancellor: Step up enforcement against the rampant non-compliance plaguing the umbrella company market. The current lack of policing has created an unlevel playing field that punishes compliant firms while allowing shady operators to thrive unchecked.
The evidence of widespread abuse is impossible to ignore. HMRC’s own list of tax avoidance schemes currently names 67 criminal umbrella firms. And that’s just the tip of the iceberg – market experts believe there are many more dodgy firms masquerading as umbrellas and facilitating disguised remuneration and other illicit practices. With no real disincentive, they have zero reason to follow the rules.
For too long, the government has turned a blind eye as contractors suffer tremendous financial losses at the hands of unscrupulous players. Consultation after consultation has been launched to “gather evidence” and “explore options.” Yet meaningful action remains elusive more than two years after the call for evidence into problematic umbrellas first opened.
The can continues to get kicked down the road while exploitative schemes proliferate in the regulatory vacuum. We’re still awaiting the results of last August’s consultation into tackling non-compliance, which was itself precipitated by the findings of an earlier 2021 consultation. How many more forums and fact-finding missions are needed? The time for tough enforcement is now.
Widespread misconduct persists because the incentives are totally skewed. With no real punishment or accountability for operating in the shadows, shadiness becomes a competitive advantage over ethical companies. Only strict enforcement and a credible threat of harsh penalties can shift that cost-benefit analysis.
The government already has the tools; it just needs to start using them and equip HMRC with more resources to expand the enforcement dragnet to capture offenders quicker.
The umbrella market needs to regain its credibility. It’s well past time to crack the proverbial whip and weed out the con artists lining their own pockets and getting away with it. Robust enforcement is the crucial first step towards cleaning up this mess.
