How to put an end to unscrupulous umbrella companies?

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The Freelance Informer asks Fred Duures of PayePass how the funds raised by taxpayers to prevent the rise of tax avoidance schemes can be justified at a time when so many families have trouble making ends meet

Duures offers his suggestions for beating the bad guys at their game and who will finance and direct the repression.

Fred Duures from PayePass

A major challenge for this government is to stop the proliferation of tax evasion schemes, which continue to pose a major threat to Treasury coffers, not to mention subcontractors, recruitment agencies and end customers.

This problem could be solved in part by regulating the umbrella industry. By the way, this was promised by the government some time ago, but it seems unlikely to happen for at least a year or two.

The Chancellor missed a big opportunity in the mini-budget, in which he could have announced additional funding for the understaffed Employment Agencies Standards Inspectorate – part of the Business Department, the energy and industrial strategy (BEIS).

While some might argue that allocating more funds to BEIS is not a priority at present, the reality is that it would help prevent tax avoidance schemes from working, which would ultimately increase overall tax revenue.

And let’s not forget that regulation is not just about preventing tax avoidance schemes. The government is well aware that – and at the expense of contractor wages – a significant number of umbrellas profit from skimming those wages each week and withholding paid holidays.

At a time when many entrepreneurs are genuinely worried about whether they can turn on their heating this winter and properly feed their families, every penny to which they are legally entitled should end up in their pockets and not in the depths of umbrellas lying around. hide or, as some might say, illegal profits.

By continually circumventing umbrella regulations at every opportunity, the government is complicit in allowing skimming and restraint to continue. I am aware that significant evidence of this wrongdoing has been submitted to various law enforcement departments and agencies, but none of them have taken action and they don’t seem likely to do so anytime soon.

Q: Who would receive the funding and how would they manage it and on what?

The main competitor is the Department for Business, Energy and Industrial Strategy (BEIS) and potentially the Employment Agencies Standards Inspectorate (EASI). With a conservative report of £40billion a year circulating in the umbrella sector, the urgent involvement of the two departments in regulation is undoubtedly warranted.

Over the past few years, detailed briefs have been provided on how to regulate, with extensive consultation. Therefore, the government already has all the details and, in truth, it is not that complicated. Existing employment and tax legislation is already in place and will fit perfectly into a regulated environment. What is missing is dedicated regulation that can enforce them and impose swift penalties.

Q: How much are we talking about and how is it calculated?

No precise and realistic figures have yet been released, but I believe that full regulation could in fact be cost-neutral, as regulated companies would have to pay it on the basis of a statutory fee as a precondition for being allowed to start and continue their activities. The profits made by companies can be significant, so they can afford to pay for their regulation.

Q: With the repeal of the IR35 reforms, how are the apex companies reacting?

A: As the dust continues to settle on the news, there is still a great deal of concern about how these companies will be affected. As there seems to be little appetite to chase umbrellas out of the industry, which I agree with, there will still be plenty of entrepreneurs who will need their services.

However, I estimate that in the first year after April 2023, several hundred thousand entrepreneurs will revert to using their own limited companies, resulting in loss of business and revenue. Some umbrellas may cease to be marketed unless they merge or adapt.

Q: Do they expect an exodus of entrepreneurs in April 2023?

A: Not necessarily. With or without IR35 reform in play, compliant apex companies provide a vitally important service to contractors, as well as the wider supply chain.

PayePass is a payroll data software company founded to protect contractors from unscrupulous umbrella companies that run tax evasion and avoidance schemes.

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