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Good news for contractors as HMRC pressure lifts

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There are rumours afoot that the government might be more sympathetic to umbrella companies than they have appeared to be in recent months, so many contractors could be breathing sighs of relief. This week saw Guto Bebb, a Welsh Conservative MP, asking the chancellor some probing questions about the use of umbrella companies by agencies. He wanted to know what measures are being put in place to stop umbrella companies being used to perform the function of a payroll department by some construction companies.

The response came from David Gauke, the Financial Secretary to the Treasury, who acknowledged the important role that umbrella companies have played in the UK’s labour market. Mr Gauke confirmed that he believed that legitimately run umbrella companies provide a useful service to those who need them to process their tax and national insurance, and support the vital work of contractors both in terms of industry and the economy.

As such, HMRC has no plans to intervene in cases where agencies are using umbrella companies as payroll services for construction company clients. This is good news for the construction industry contractors who will be keen to hear some good news in the wake of the impact that the false self-employment laws have had on the sector which caused uproar amongst some of the more vocal amongst those affected.

The changes in the way that the Construction Industry Scheme was administered had a negative effect on workers in that sector, many of whom are contractors, and the Union of Construction, Allied Trades and Technicians were concerned that their members would be financially disadvantaged as a result of the new legislation. They believed that it should be possible to target those who are exploiting workers by claiming that they are self-employed when they aren’t without penalising those who are legitimately self-employed and operating appropriately through umbrella companies.

The response from David Gauke suggests that the government recognise that it is only a small proportion of the umbrella companies in the country who are failing to comply with the regulations and paying workers below minimum wage or passing on their costs to the workers who use them. HMRC have been accused of being heavy-handed in their approach to umbrella companies and failing to recognise that it is those who are working through such organisations who stood to be penalised rather than those profiting from the deception.

There are a number of different forces at play in this situation – HMRC do not want to be seen to be overlooking organisations which are flagrantly flouting their rules, but trades unions and other bodies which represent independent professionals are keen to protect those they speak for by protecting their interests. Whether a compromise is likely in this situation is yet to be seen, but the latest news is good for contractors who were concerned that they may be caught in the cross-fire.

If you want to work out how much you could be earning as a contractor, then our take home pay calculator is a useful tool to help you plan your finances. We also offer a full service dealing with contractor tax, so we could save you time and money as well as relieving you of the stress of working out your taxes. For more details on the services we offer, please give us a call on 01442 275789 or email newbusiness@sjdaccountancy.com.

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