Much is happening right now that will affect recruitment supply in the future. We have commented on the zero hours proposal, see here. Today it’s the turn of plans for umbrella market regulation.
The government has now published its initial proposals for regulation of the umbrella market. This includes publication of new legislation to redefine what is an ‘employment business’ to include umbrellas within the scope of that definition. Assuming this becomes law, the result will be to bring enforcement within the management of the Employment Agency Standards, which historically has responsibility for recruitment businesses but not umbrella companies.
The publication is in a response to the joint HMRC,HM Treasury and DBT consultation from the summer of 2023 which included how to define and regulate umbrellas, mandatory due diligence and tax debt transfer.
Unfortunately the proposals do not include the suggestion put forward by the Association of Recruitment Consultancies (ARC) that umbrella companies should be subject to an official registration scheme, but instead focus on regulation and creating agency liability for umbrella PAYE taxes.
Key points
Key points are as set out below
- A new definition of an employment business which is intended to include umbrellas
- Regulation enforcement to be via EAS
- There is to be another consultation on amendments to the agency conduct regulations to include provisions relevant to umbrella company operations
- Mandatory due diligence as previously proposed will not be introduced
- Primary responsibility for accounting for PAYE tax and NICs of an agency worker is to pass to agencies and hirers and so there is no longer a proposal for debt transfer
The intention to change primary tax responsibility from the umbrella company to the agency was announced in the Autumn 2024 budget statement. Full details of the change have not yet been published but are expected to be included or at least facilitated in the Finance Bill 2025 which itself may be published soon.
Next steps
There will be further regulation to include the required changes and so there are commitments by the government to consult. There are no specific time scales as yet, save that we know that the intention is that tax responsibility moving to agencies will apply from April 2026. Accordingly, businesses can continue to work with umbrella companies.
Whilst Lawspeed advice is always to protect your position with strong terms, rely on your own due diligence and take advice to avoid common mistakes, the bigger picture of how umbrella companies can remain in the marketplace without being wholly eradicated because of the transfer of tax liability remains up in the air pending the detail.
As with other plans for new legislation ARC will monitor the proposals as they emerge and continue to operate its independent brief for its members and the industry.
ARC’s response to the previous umbrella market consultation is available on request. To join ARC please call 01273 777 997.