The Association of Recruitment Consultancies (ARC) calls upon the recruitment industry and hirers to lobby for the scrapping of HMRC’s proposals addressing tax non compliance by umbrella businesses.
The proposals, set out in the Finance Bill, intend to make employment businesses (agencies) and end user clients jointly and severally liable for the employment tax debts of non compliant umbrella companies.
Adrian Marlowe, chair of ARC, said “in their current form the proposals are unacceptable. Not only are agencies that employ their workers defined as umbrella companies, which they patently are not, but client reaction to facing the agency’s tax liability is likely to result in the loss of employment by those workers and/or a skewing of the market place.
Referring to the recent article from Kate Shoesmith, the REC deputy CEO, ‘Tax enforcement shouldn’t be employers’ problem’, it is clear that the REC is also unhappy with the outcome. Marlowe continued “The proposals need to be scrapped or as a minimum taken back to the drawing board. They offend so many principles, not only affecting employment status of agency workers, and providing no defence to an HMRC claim, but also requiring double payment of PAYE and NICs from the innocent agency or client.
“The umbrella industry suggests that due diligence is the answer. But as Kate says, ‘these changes mean they (agencies) must dig deeper by requiring Real Time Information (RTI) submission data, reviewing payslips or anonymised payment records to confirm pay and deductions, and requiring proof that tax payments have reached HMRC. Each of these steps piles on admin pressure and heighten GDPR risks.’ ARC agrees. If due diligence was the answer there should be a due diligence defence, but there is none.
“There is no RTI checker nor, as we have pointed out to HMRC, is there any kind of process for advance warning to the parties to be made liable for an umbrella payment infringement leading to a claim. A warning process should result in stopping the non compliance in circumstances where HMRC is otherwise the only party aware of the infringement. However there is a perfectly workable alternative and the time for the industry to come together to push for it is now.
“All of the options on the consultation table in 2022/23 would have resulted in the agency being liable for the umbrella’s PAYE and NICs in one set of circumstances or another. That is why ARC proposed a government operated umbrella registration scheme, publicised it widely, set it out in round table meetings with industry representatives and HMRC, and included it in detail in our response to the consultation.
“The benefits of a registration scheme are multifold. Not only would it avoid the need for excessive due diligence, or agency or client liability as in the current Finance Bill, but it would stop non compliance in its tracks. Only HMRC knows when there has been a non compliant activity, and it could act quickly. An effective de registration process would save HMRC the millions it claims to be going astray for the benefit of all taxpayers, including contractors, agencies and clients alike. The entire scheme would be at a cost that can be met by those good umbrella companies that register, operate compliantly and profit from their businesses.”
ARC maintains that it is not too late to ask the government to abandon its current approach or make wholesale adjustments to address the key unfairness. Without change, Marlowe says “the recruitment supply industry will never be seen by clients in the same light again. The cost of temp and contractor supply will inevitably increase, so the recruitment industry needs to pull together on this to lobby government. As things stand no one will benefit from these rules, yet many will be the losers.”
19th August 2025
How can you help?
If we all do nothing the legislation will inevitably be brought in. So to give change a chance here’s what you can do
- Circulate this article to your clients, other recruiters you know, and via social media
- Email your local MP asking him/her to object to the proposal and encourage support for change. A draft email can be found below.
- Let us know your comments – link
- Join ARC – we are looking after your long terms interests
Draft email to MP
“Dear….
I am writing to object to the proposal to introduce a new chapter 11 into Part 2 of ITEPA to make employment agencies or end clients joint and severally liable for any amount required to be accounted for under the PAYE provisions where an umbrella company forms part of a labour supply chain.
Compliant umbrella companies provide useful service to agencies, end clients and workers alike. However as now drafted the current proposal will unfairly
- force all end clients that use agencies who employ their workers to be liable for their agencies PAYE and NICs, and discourage agencies from employing their workers
- result in loss of employment opportunity for agency workers
- skew the recruitment market so that smaller agencies will lose out to the bigger ones
- place liability for umbrella tax onto agencies when they have already paid the same amount to the umbrella company, so forcing a double payment
- automate liability without any possible defence by the agency or end client or right of appeal, regardless of any due diligence undertaken
- create a new and dangerous precedent for one party to be automatically liable for the tax of another.”
I support the principle that tax avoidance by non compliant umbrella companies should be tackled and advocate that the only proper way to achieve this is for there to be a government operated registration scheme for umbrella companies. This would have the following advantages:
- avoid all of the unfairness included within the current proposals as summarised above
- allow umbrella companies to register subject to impartial compliance checks set by independent experts, avoiding risk of conflict of interest
- rule out registration by non compliant umbrella companies, which could not be registered
- prohibit the use by agencies or end clients of any non registered umbrella company, similar to the Gangmasters Licensing scheme
- allow agencies and end user clients to have a reliable source of compliance assurance, allowing them to deal with recruitment not tax, so helping growth in the economy
- avoid the need for unnecessary and expensive multiple due diligence checks by private sector operators, already proven not to work
- allow HMRC to de register a company when non compliance is identified, so limiting loss and avoiding delay in recovery of unpaid sums by providing a warning to the users of the umbrella company – HMRC is the only party that knows when an umbrella company has been non compliant
- massively reduce non compliance in a single stroke so limiting the need for allocation of HMRC resources
- protect the rights of employed agency workers
- no cost to the government as the operational cost would be met by the umbrella companies that register
Even with a wholesale review of the drafting, the advantages outlined above are unlikely to be achieved. As my MP I urge you to support the rejection of the current proposal, and to support the change as indicated. I would be very grateful to know your position on this.
Yours etc.”
