The Welsh government has already moved to ban the use of umbrella firms on its construction projects, but the UK government has no plans to follow its lead.
“Umbrella companies have been a part of the UK labour market for many years and, when operated responsibly, provide a useful conduit through which payments, including tax, can be made,” said financial secretary to the Treasury David Gauke. “As such, Her Majesty’s Revenue & Customs (HMRC) are not taking steps to stop agencies using umbrella companies to manage the payroll function of companies within the construction industry.”
Mr Gauke was responding to a written question posed by Guto Bebb, Conservative MP for Aberconwy, who asked: “what steps his department is taking to stop agencies using umbrella companies to manage the payroll function of companies within the construction industry.”
Trades unions have been campaigning strongly against umbrella companies, which have proliferated since April 2014 when HMRC banned employment agencies claiming that construction workers were self-employed. Rather than pay workers in a standard directly-employed PAYE manner there has been a mass move to pay workers via umbrella companies. There have been many allegations of ordinary hard-working constrcution workers ending up signficantly out of pocket as a result. (e.g. See previous report here on umbrella company abuse allegations.)
Ten payroll companies have got together to form the Freelancer & Contractor Services Association (FCSA) to protect their business interests. Despite the organisation's name, it does not represent any freelance workers or self-employed contractors.
FCSA chief executive Julia Kermode welcomed the Treasury’s backing for umbrella companies. “It is refreshing to hear that the government has no intention to stop agencies using umbrella companies and that it recognises the value of umbrella companies and the important role they have in supporting the UK’s flexible labour market,” she said.
“This is particularly timely given the various recent media reports that have unfairly tarnished our sector, and the reputation of the many compliant and responsible umbrella employers working in the best interests of freelancers and contractors.
“I am pleased that the government understands the role of umbrella employers, and that it is a positive choice for the majority. It is the cowboys in the industry operating dubious practices who give umbrella firms a bad name.”
However, Ucatt general secretary Steve Murphy said: “The F&CSA is a typical employers group which blames all the problems of umbrella companies on a few bad apples, when the fact is that umbrella companies are designed to corrupt the relationship between employers and workers. If the F&CSA desires to have any credibility they would be publicly naming and shaming the companies who they believe are distorting the umbrella company model and demanding tough regulations to end these nefarious practices.”
Mr Murphy also expressed surprise at the Treasury minister’s statement as it appears to pre-empt the conclusion of the government’s consultation into umbrella companies. Consultation on the paper Employment Intermediaries: Temporary workers – relief for travel and subsistence expenses, which was announced in the autumn statement, does not close until 10th February.
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