UK: Umbrella Company Update: New Government Proposals Amid Calls for Total Ban

The Trades Union Congress (TUC) is calling for a total ban on umbrella companies in the UK following proposed legislative changes from the government to clamp down on bodies that perpetuate tax avoidance, including non-compliant umbrella companies. An umbrella company is a payroll company that recruitment agencies use to pay workers they place for clients.

The TUC states that umbrella companies can create issues for workers that include tax evasion schemes, fragmented conflict resolution pathways, misleading and unfair pay deductions, and denial of holiday leave and pay entitlement. They also predict that some companies will transfer contractors to umbrella companies as a convenient way to avoid IR35 compliance liability.

The government is currently consulting on the drafted legislation that would give Her Majesty’s Revenue and Customs (HMRC) the power to freeze the assets of companies that promote tax avoidance schemes, shut down non-compliant companies, distribute additional penalties to UK entities facilitating offshore tax avoidance and publicly identify companies under investigation for tax avoidance.

Research from the TUC found that approximately half of agency workers are working for umbrella companies, and they foresee this number will rise, following COVID-19 reopening measures and anticipated labor shortages. The union hopes to see joint liability laws in supply chains to hold both the end client and any contractor involved responsible for upholding workers' rights and greater trade union access and increased rights, in addition to the total ban on umbrella companies.

Takeaway: The controversy surrounding umbrella companies underscores the need for employers in the UK to gain complete clarity into their extended workforce, including how it is sourced and what arrangements are being used to manage talent. A partner such as AGS provides the means to gain complete visibility across the workforce and can help reveal potential regulatory risks, such as those presented by non-compliant umbrella companies.

UK: Umbrella Company Update: New Government Proposals Amid Calls for Total Ban

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