Government urged to rethink ‘unfair’ umbrella tax debt proposal

A consultation looking at ways to lessen tax non-compliance has suggested transferring an umbrella company’s payroll tax debt to employment businesses if the debt is uncollectable from the umbrella.

On top of this, the Treasury is even considering widening this proposed policy to include non-employment taxes such as VAT.

The Recruitment and Employment Confederation (REC) is calling on the government to stay focussed on regulating umbrellas and scrap their grossly unfair proposal to pass the buck of umbrella tax debt to employment businesses.

Responding to the consultation, REC Deputy Chief Executive Kate Shoesmith said, “Employment businesses should report obvious or suspected tax avoidance to protect temporary workers, themselves and ensure tax is paid. But it is grossly unfair for recruiters to shoulder liability for another company in their supply chain over which they have no control. That is near unheard of in business.

“Unethical umbrellas can open and close overnight, which under this proposal risks leaving employment businesses to try and survive after taking a big and unexpected tax hit.”

Kate added, “There is also the broader risk that exposing compliant businesses to additional tax risks when engaging with an umbrella undermines the UK’s world-class flexible labour market at a time when organisations are relying on temps to get through the economic downturn.

“The alarming thing is that it looks like a quick fix – but it will put employment businesses in quicksand. We really want the government to act more broadly, by widening the scope of current regulations to include all employment intermediaries, including umbrellas, and then enforce them.

“If HMRC is just after a quick fix, they should take simple proactive action such as more cross-referencing of Real-Time Information (RTI) and intermediaries’ reports. This could have a significant impact on curbing tax non-compliance. HMRC should also consider reviewing the VAT flat rate scheme and the employment allowance scheme to stop any misuse.”

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