IR35: MPs urged to back ‘curb or kill’ umbrella company-focused Finance Bill amendments

MPs are being urged to vote in favour of two proposed amendments to the incoming Finance Bill that are intended to stamp out malpractice among unregulated umbrella company operators.

The amendments – tabled by David Davis MP with the support of Sir Iain Duncan Smith MP and Andrew Rosindell MP – call on chancellor Rishi Sunak to carry out an impact review of clause 21 of the Finance Act, which concerns workers that provide services through intermediaries.

“The chancellor of the exchequer must review the impact of section 21 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act,” the amendment stated.

This review should, as detailed in the amendment, examine what impact this clause has on levels of tax avoidance, and whether this would worsen or improve if the off-payroll working rules were subject to tweaks that would “prohibit the operation of umbrella companies”.

An alternative suggestion put forward in the amendment is to change the off-payroll working rules in such a way that would prevent umbrella companies from operating unless certain conditions are met, with regard to how contractors are compensated when working this way.

Specifically, these conditions appear to focus on ensuring contractors employed by umbrella companies are not subjected to unexplained or unlawful salary deductions, nor should the company they provide their services through be able to withhold their holiday pay.

As previously reported by Computer Weekly, these are both issues that contractors who provide their services to end-clients via umbrella companies are known to experience, with the issue of unlawful salary deductions set to result in a series of legal actions against the firms responsible in due course.

At the same time, the government has found itself on the receiving end of criticism from contracting stakeholders of late because of how long it is taking to draw up and push through the legislation required to regulate umbrella companies to prevent this type of malpractice.

As well as the issue of contractors suffering unexplained and unlawful deductions from their pay packets, some umbrella firms have also been linked to tax avoidance schemes that have left participants saddled with life-changing tax bills.

As reported by Computer Weekly earlier this month, the government was gifted a draft policy by a former senior adviser to the Office of Tax Simplification, Rebecca Seeley Harris, to help expedite the process of introducing regulation for umbrella companies.

Until the called-for regulation emerges, the proposed amendments could help curb many of the concerning behaviours displayed by umbrella companies, it is claimed.

“The amendments give the government a year to either ‘curb or kill’ the unregulated umbrella market,” said Dave Chaplin, CEO of contracting authority ContractorCalculator.

This is because both amendments contain “sunset clauses” that mean the umbrella market will have until 6 April 2022 to prepare for the changes, if MPs vote in favour of them, and would also give the government more time to push through regulation for umbrella companies.

MPs are due to vote on these amendments later today (Monday 24 May) in the House of Commons, with the Finance Bill set to have its third reading straight after, before being handed off to the House of Lords. 

Chaplin added: “The malpractice [within the umbrella sector] needs to stop and we would urge MPs to vote on the chosen amendment, so that the sector moves towards one where the cowboys are driven out, allowing the compliant parts to get on with their jobs to support the contracting sector.”