Government kicks umbrella regulation can further down the road

At the start of each year, it’s nice to look ahead at the little milestones of joy in the calendar; perhaps you’ve got an eagerly anticipated holiday, or maybe a landmark birthday to celebrate.

For tax professionals, there’s one day in particular to look forward to: the government’s annual tax administration and maintenance day. True, it’s not exactly Christmas or the first day of your holidays. And this year – as with every year since its introduction – there was little fanfare to mark the occasion.

Unfortunately, there was also little to celebrate this year, with the government all but confirming it would further delay its plans to regulate the umbrella sector – a move which will go down like a lead balloon among flexible workers. 

But…what is tax administration and maintenance day?

Good question. It’s not widely recognised or reported on, outside of our tax niche. 

The national media doesn’t have much of an appetite for it, though industry bodies – including KPMG, the Chartered Institute of Payroll Professionals and the Institute of Chartered Accountants in England and Wales (ICAEW) – have covered it.

In short, tax administration and maintenance day is an opportunity for the government to announce updates on technical tax proposals and any consultations that are underway. 

Think of it as a smaller and less glamorous version of the Spring Budget or Autumn Statement, with fewer rabbit-out-of-a-hat moments.

Great. So, what happened?

Not an awful lot. In fact, it’s left us feeling a little underwhelmed.

The headline takeaway for flexible workers is that despite remaining “concerned about the scale of non-compliance” in the umbrella sector – and the “detrimental impact” it has on workers, taxpayers and the wider market – the government isn’t doing too much about it. 

Instead, it plans to publish its response to last year’s consultation “in due course” and release “new guidance later this year” to help umbrella workers assess whether the correct deductions are being made from their pay.

While this is welcome, many will feel it falls well short of what’s needed. The government says it will “introduce a due diligence requirement to drive out bad actors from labour supply chains”, but it’s not clear when that will happen.

Effectively the can of umbrella regulation is once more being kicked down the road. It’s strange, given the government is under pressure to address non-compliance in the sector, both due to ongoing concerns around the Loan Charge, and increased umbrella use among contractors following IR35 reform. 

Umbrella companies aside, there were a handful of other measures announced, including:

• The launch of a consultation on the VAT treatment of Private Hire Vehicles 
• A consultation on the introduction of a VAT relief on charitable donations made by businesses
• A consultation on legislative changes to how the Freeports and Investment Zones tax relief is operated

A bit of a damp squib, then?

You could say that. 

Slightly confusingly, it was also followed by the publication of new guidance from HMRC to employment agencies, on the risks of using non-compliant umbrellas – highlighting how contradictory the government’s messaging about the issue currently is.

That’s something the government has already faced criticism for, and not just recently; the problem of tax avoidance schemes posing as compliant umbrella sectors isn’t a new one. Despite having previously made promises to regulate the industry, we don’t know when this will happen, if ever. 

With IR35 reform forcing many more contractors into working via umbrella companies – and potentially exposed to non-compliance risks as a result – in our opinion, the sooner the umbrella industry is regulated, the better.