Tackling non-compliance in the umbrella company market – Consultation outcome

Following the Consultation on non-compliance in the umbrella market, HMRC have published the outcome here. In the 2023 consultation, the government consulted on three options with a view to improving tax compliance – mandatory due diligence, the transfer of PAYE debt up the supply chain and moving the responsibility to operate PAYE to the agency/end client. The response to each of the options proposed indicates that the aim of the proposal is to change the behaviour of the businesses which use umbrella companies and encourage them to do more to prevent non-compliance in their supply chains. As such, the Government proposes to shift the PAYE responsibility from umbrella companies to end clients and agencies from 6 April 2026.

Future changes which impact the use of umbrella companies

To combat non-compliance in labour supply chains involving umbrella companies, the 2024 Autumn Budget revealed a significant reform commencing in April 2026. This reform will directly impact end clients and recruitment agencies utilising umbrella companies for worker employment and payroll services. Further information can be found here.

HMRC v Professional Game Match Officials Ltd (PGMOL) Supreme Court judgement 

The much anticipated judgment from HMRC v Professional Game Match Officials Ltd (PGMOL) has been released and has significant new guidance from the Supreme Court. Following this, and other important recent case law updates (including S&L Barnes, Atholl House), Deloitte hosted a webcast, available on demand here, covering:

• What the courts said and why it matters for status decision making;
• Common areas of misunderstanding when making employment status decisions and how are they influenced by the judgments;
• What we think it means when using CEST and other tools; and 
• Best practice next steps for clients with self-employed/outside IR35 off payroll workers.

Best practice guidelines

HMRC released ‘best practice’ guidelines on how to comply with the reformed off-payroll working rules. These guidelines are designed to demonstrate minimum compliance standards for organisations and what best practice is in the context of the off-payroll working rules. 

Calculation of PAYE liability in cases of non-compliance

Following a Consultation in April 2023, the Government legislated in the Autumn Finance Bill 2023 to allow HMRC to reduce the PAYE liability of a deemed employer to account for taxes paid by a worker and their intermediary on payments received where an error has been made in applying the off-payroll working rules. As HMRC may not have access to all relevant data, the policy will proceed on the basis that they will use their best estimate to determine the amount of tax and NICs to set off. Please see further details here.

Consultation regarding umbrella companies

Following the HM Treasury/HMRC/Department for Business and Trade call for evidence in November 2021, the Summary of Responses has been issued alongside a Consultation which proposes options to improve compliance in the umbrella company market, both from a worker rights and tax compliance perspective. The consultation closed on 29 August 2023. Please see further details here.

HMRC compliance questionnaire

HMRC have started to increase IR35-specific enforcement activity. We are aware that HMRC have issued a detailed questionnaire to a large number of employers which is primarily focused on collecting information regarding the business’s entire off-payroll workforce (and not just those engaged through PSCs). This may be used as a starting point for compliance activity/discussions in this area. We have seen HMRC begin to follow up on responses to these questionnaires with further queries.

IR35 reforms to remain in place

The government announced that the public and private sector IR35 legislation repeal would not take place, so the current IR35 rules will remain in force beyond 6 April 2023.

IR35 repeal

The government announced plans to repeal the public and private sector IR35 legislation with effect from 6 April 2023. In practice, this meant that the compliance obligation to assess employment status and operate PAYE moved from current end client engagers/ fee payers, back to individuals operating via personal service companies (PSC).

December 2021

Call for Evidence on Umbrella Company Market

A Treasury/HMRC/BEIS Call for Evidence on the umbrella company market was issued. The publication sought to gather insights on a number of the areas (e.g. including provision of employment rights, potential legislation to regulate umbrella companies and tax non-compliance). 

October 2021

New HMRC Umbrella company guidance

HMRC introduced guidance highlighting the risk of using umbrella companies who operate tax avoidance schemes for hirers and agencies. The guidance targeted connection to the more serious areas of non-compliance (disguised remuneration and mini-umbrella fraud) and strongly raises the potential consequences (compliance checks, liabilities, penalties). It also raised the potential for penalties for enablers of tax avoidance.

September 2021

Off payroll worker survey *now closed* – Please participate in our off-payroll worker survey, aimed at collecting market information in order to identify pertinent trends and insights which can be shared back with you. To access the survey, please click here.

June 2021

A new labour market Single Enforcement Body

Government re-affirms commitment to create a single body to enforce employment rights and regulate umbrella companies. To access our Fair Pay: Strategy & Compliance page, please click here.

June 2021

The transition to employment companies (umbrella arrangements)

What you should know and how to best avoid fair pay governance issues. For more information, please click here.

June 2021

Deloitte off payroll worker risk diagnostic

Gold standard ‘what does good look like’ methodology to test post 6 April 2021 IR35 governance. For more information, please click here.

May 2021

Global Contingent Workforce – Deloitte Client Insights

Deloitte Tax Ventures and Deloitte Global Employer Services teams conducted interviews with key global clients during March 2021 to better understand the needs and challenges around the management of Contingent Workforces. Please click here to see the output.

March 2021

The Spring Budget

From an IR35 perspective, further changes were announced that impact individuals supplying their services through an intermediary, such as a personal service company (PSC) or an umbrella company, and who would be employed if engaged directly. The technical changes have been made to make sure the off-payroll working legislation operates as intended. The changes were enacted on 10 June with retrospective effect from 6 April 2021 and:

•  Address an unintended widening of the conditions where an intermediary is a company;
• Improve the operation of the rules by extending the provision of information to the intermediary, as well as the worker; and
• Improve the operation of the rules by extending the consequences of providing fraudulent information to any UK-based party in the labour supply chain.