It’s fair to say the surprise early election date caught almost everyone off guard, including the Whitehall machine. In one fell swoop, a plethora of bills, reforms, consultations and evidence sessions were put on hold or cancelled. One such victim was the much-needed and long-overdue regulation of the umbrella company market.

Having faced calls to regulate this market for years, government finally began consulting with industry to figure out how to turn its promise into reality. We had the announcement (if you can even call it that) in April that government was ‘minded to introduce a due diligence requirement to drive out bad actors from labour supply chains’.

This would force businesses that use umbrella companies to carry out due diligence checks before engaging them, with the threat of a penalty for failure to do so – a positive step in the eyes of many working on the proposals.

The problem with the market

It’s telling that a significant amount of HMRC’s compliance work is now exclusively focused on tax avoidance schemes that use umbrella companies.

Just two weeks ago, HMRC added another seven avoidance schemes to their online blacklist for contractors to avoid – the overwhelming majority of which are styled as umbrella services.

Whilst many umbrellas are compliant with the tax rules, the prevalence of rogue umbrellas is a significant problem for contractors – the majority are simply trying to navigate the post-IR35 world with demands from clients to use one if they want to work.

For too long now these rogue umbrellas have benefited from a lack of oversight of the market. Little fear of prosecution when contractors themselves are often picking up the pieces (and a significant tax bill) when the directors of the rogue umbrella are nowhere to be found.

IPSE had been working closely with the Financial Secretary, the Small Business Minister and the Department of Business and Trade on these proposals prior to the election. Whilst Labour have committed to bring about some action in this area, it remains unclear if these plans to implement a due diligence requirement will be carried forward by the new administration.

The Single Enforcement Body is back on the scene

A government agency with increased powers to oversee and enforce the rights of employees and workers was first proposed by the Taylor Review in 2017. Since then, the Conservatives had pledged (and then reneged) to implement such a body. Now, Labour want to introduce a rebadged ‘Fair Work Agency.’

This body would merge the Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority and also the unit that polices the National Minimum Wage.

However, the powers and scope of the body are still yet to be set out explicitly by government and we will continue to call for the umbrella market to be included in their purview.

But where are the consultations?

One thing that has become evident since Labour came to office has been the lack of government consultations on their proposals concerning the Employment Rights Bill. 

It’s likely they don’t want any delays to their promise to pass the bill in the first 100 days but we need to have proper scrutiny from all interested parties in order to consider any unintended consequences of what could be quite radical reforms.

IPSE’s campaigning on the need for umbrella company regulation

IPSE responded to the consultation back in August, welcoming many of the proposals brought forward and we continue to press the need for regulation.

Since then, we’ve highlighted in our discussions the need to prioritise the experience of the individuals. Clients, agencies, HMRC and umbrella companies themselves all have their own preferences for what regulation could look like, but it’s the individual umbrella workers that should ultimately benefit. This is something that we continue to raise with Ministers and we’ll update members on any new plans brought forward.