Government move on umbrella companies a chance to end disguised remuneration problem

The Low Incomes Tax Reform Group (LITRG) welcomes today’s publication of a cross departmental call for evidence on the umbrella company sector and hopes it will ultimately lead to an end to the problem of low-paid agency workers being paid through disguised remuneration.

Meredith McCammond, Technical Officer at LITRG, said

“This consultative approach by government is a great opportunity for it to gather evidence about the actual and current problems with umbrella companies. This must include first-hand evidence from workers who have found themselves in a disguised remuneration scheme. We encourage the Government to think creatively about how it can gather insight directly from workers.

“This consultation should help determine the shape of a future ‘single enforcement body’ regime of regulation and crucially, should prompt HMRC to flex their muscles to deal with disguised remuneration appropriately and robustly.”

LITRG’s 150-page report, published in March 2021,¹ included a detailed look at how umbrella companies operate. A lot of good practice was found but the report also highlighted several concerns including about the use of disguised remuneration schemes by some umbrella companies to pay workers instead of traditional wages.

Earlier this year, LITRG cautioned that regulation by the new single enforcement body (SEB) will not be sufficient by itself to address the problem of disguised remuneration.² Although regulation of the umbrella company market may help bring improvements for umbrella employees in key areas, disguised remuneration is primarily a tax, not an SEB, issue. The aim of the SEB is to protect worker’s rights and clamp down on bad practice in the labour market and will combine the Gangmasters and Labour Abuse Authority, the Employment Agency Standards Inspectorate and HMRC’s National Minimum Wage Enforcement into one body.

LITRG says that urgent work by HMRC is required as a priority to stop umbrella companies that use disguised remuneration to pay workers. They have put forward their own ideas to HMRC in terms of how to tackle this issue.³

Meredith McCammond said:

“Many umbrella companies adhere to certain standards, are clearly concerned about the welfare of their workers and want to drive the sector forward.

“But lower-income workers without a tax avoidance motive continue to get caught up with those umbrella companies that use disguised remuneration schemes to pay them. Disguised remuneration has a significantly bad impact on the well-being of the workers involved. And it also tarnishes the reputation of the entire umbrella industry. Progress by HMRC to stop these disguised remuneration schemes at source has been slow so far.

“HMRC are focussed on taking action against promoters of tax avoidance schemes and educating workers against the risks of using disguised remuneration schemes. But this assumes that there is a sophisticated promoter structure in place and that workers are making the choice to enter into schemes. While that is true in some cases, in our experience the problem has shifted and is no longer something akin to traditional tax avoidance.

“We have been urging HMRC for some time to recognise that some workers will be unaware that they are in a disguised remuneration scheme as the motivation and benefits sit with others in the labour market supply chain. Understanding this is key if HMRC want to develop a successful strategy to tackle disguised remuneration in this part of the market.”

Notes for editors

1. https://www.litrg.org.uk/latest-news/reports/210324-labour-market-intermediaries
2. https://www.litrg.org.uk/latest-news/news/210610-press-release-tax-campaigners-welcome-commitment-umbrella-company-regulation
3. https://www.litrg.org.uk/latest-news/submissions/210601-clamping-down-promoters-tax-avoidance