Commenting on the announcement, Susan Ball, employment tax partner at RSM UK said: “Today’s announcement marks a significant step for the umbrella and agency sector, as well as for organisations who use them, as the government has confirmed it will legislate statutory due diligence. We await further details on the penalties for non-compliance, but it’s hoped this move will help eliminate malpractice throughout the labour supply chain.”
Last summer, the government launched a consultation on strategies to curb tax non-compliance in the market, with a commitment to publish a response to this consultation in due course. This consultation included a proposal to address tax non-compliance with ‘a statutory requirement for end-clients or recruitment agencies to carry out due diligence on umbrella companies.’
Susan continues: “As we eagerly await further details of last summer’s consultation, some elements of it appear to have been set aside, and were conspicuously absent from today’s Tax Administration Day summary. There is no mention today of the transfer of payroll tax debt from non-compliant umbrella companies to the recruitment agency or end-client, or imposing PAYE and NIC obligations on recruitment agencies that supply workers who are employed by umbrella companies. Concerns on these points may remain though until full details of the consultation are disclosed.
“It’s encouraging to see that today’s statement explicitly mentions ongoing engagement with the recruitment industry and other key stakeholders on the specifics of a statutory due diligence regime. This will ensure the government has a comprehensive understanding of the potential impact of any new regime for organisations that use umbrella companies. In the meantime, we recommend adherence to the HMRC guidance published in December 2023, Tackling non-compliance in the umbrella company market. This outlines the expectations for organisations and may serve as an indicator of future developments.”