UK.gov finally proposes to police rogue umbrella companies but leaves questions unanswered

At the eleventh hour, UK government has detailed plans to regulate umbrella companies, some of which stand accused of dodgy dealings as their use grows among IT contractors after IR35 tax rule changes.

Following an earlier announcement of a Single Enforcement Body to tackle modern slavery, enforce the minimum wage, and protect agency workers, the Department for Business, Energy and Industrial Strategy (BEIS) has included a detailed response to a labour market consultation which addresses umbrella companies.

It says part of the role of the new Single Enforcement Body (SEB) would be to regulate umbrella companies, a point omitted in the initial release. IT contractors have been increasingly using umbrella companies since the introduction of new IR35 rules in April. An element among the intermediary employers has been accused of holding back holiday pay and skimming off pay in the form of opaque fees.

In its consultation response [PDF], BEIS said umbrella companies - which provide accountancy and admin services - did not currently fall within the remit of the Employment Agency Standards Inspectorate, but the government has now committed to giving the state a role in policing the activities of these firms. Hence the promise of regulating them with the Single Enforcement Body (SEB).

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However, campaigners have said details regarding how enforcement would work in practice are yet to be resolved. Rebecca Seeley Harris, chair of the Employment Status Forum and a leading expert on employment and tax status, said funding, which is subject to the next Spending Review, would need to be sufficient for SEB to fulfil its remit.

Similarly, the body should be staffed with people who understand how the market works and the loopholes exploited.

"The response document is a high-level document and does not go into specific detail but the framework is certainly a huge step forward in terms of regulation of the umbrella company industry and the protection of workers," Seeley Harris said.

"There is much detail to be worked on, and the devil is in that detail. We intend to keep pushing the government for a legislative timetable and guide the content."

Working with James Poyser, CEO of inniAccounts and founder of campaigning website offpayroll.org.uk, Seeley Harris has put together the draft policy "Umbrella companies – Call for Regulation", which has been submitted to Jesse Norman, financial secretary to the Treasury, and Paul Scully, Parliamentary under-secretary of state in EIS.

In May, Parliament decided not to select amendments to the 2021 Finance Bill designed to offer contractors protection from rogue umbrella companies. ®