The full response can be found here, and please read on for Clipper Contracting’s summary:
As one of the original respondents to the consultation, we’ve been following it’s progress closely. The latest update would suggest that a decision has been made on the best way forward, but is yet to be formally confirmed, so please do bear that in mind and we will of course keep our partners updated.
Of the three options proposed by government on tackling non-compliance, it appears they have settled with Option Three – deeming the employment business (in real terms - the agency) to be responsible for PAYE. Option One (the proposal of additional due diligence) and Option Two (transfer of debt) don’t seem to have curried favour.
So in terms of Option Three – what does this potentially mean? The most logical and easy to manage solution is that the employment business (agency) will be liable for any unpaid PAYE tax in the supply chain. Eg, if the agency were found to be engaging with an uncompliant Umbrella model to engage it’s workers, they would be found liable for any shortfall if the arrangement was uncovered and exposed. Indeed, this would be similar to the off-payroll IR35 changes in that another entity is made responsible and therefore polices the supply chain. Similar also to the 2014 false-self employment legislation that polices CIS in the construction industry.
The alternative and slightly more illogical process is that it is the employment business that actually pays the PAYE, which would causes a few more issues in terms of process. How would this tax relationship between the agency and Umbrella work? Perhaps the Umbrella company pays the PAYE tax to HMRC under the employment business’ PAYE reference number, or the agency retains the PAYE themselves and pay it over? Working out these arrangements would certainly be problematic, and we’ll need to wait for further details on how this mechanism would work.
Fundamentally, the good news is that this proposal should further drive out uncompliant Umbrella companies and shrink the market for those remaining. It is worth also noting there is currently no mention of self-employment being included so far – whether this will change is yet to be seen.
For now, we’d like to reiterate to the industry that nothing will change until April 2026. We will wait for further details on how this will shake through before coming up with the necessary amendments.
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