Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps her Department is taking to help ensure that umbrella companies in the temporary labour market comply with tax legislation on (a) the proper (i) deduction and (ii) reporting of (A) income tax and (B) National Insurance contributions for temporary workers and (b) other matters.

The Government is committed to closing the tax gap and making the tax system fairer by ensuring temporary workers are protected from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies. That is why the Chancellor announced in her Autumn Budget that the Government will introduce legislation to make recruitment agencies using umbrella companies legally responsible for accounting for Pay As You Earn on workers’ pay.

The Government set out the expected Exchequer impacts of this measure at the Budget. The Government will publish a full Tax Impact and Information Note later this year.

HMRC recently launched a comprehensive guidance tool, ‘work out pay from an umbrella company’, that agencies and umbrella company workers can use to better understand umbrella company pay and ensure tax compliance. The tool automatically flags discrepancies between submitted payslip information and calculated estimates that could indicate hidden deductions or tax avoidance.

Earlier this month, HMRC published guidance with examples of how umbrella companies can demonstrate good practice. This guidance aims to raise standards across the umbrella company sector, creating a fairer market and helping workers and businesses understand what good practice looks like. This guidance can be found online at www.gov.uk/guidance/examples-of-good-practice-for-umbrella-companies-in-the-temporary-labour-market.

The measures in the Employment Rights Bill will bring the activities of umbrella companies in scope for future regulation to ensure individuals working through them can access the rights they are legally entitled to and can receive greater transparency in the terms of their employment.