HMRCSR0011
Written evidence submitted by ContractorCalculator
I write as the CEO of ContractorCalculator.co.uk, a website with over 100,000 monthly visitors running for over 20 years, and championing the flexible workforce, both freelancers/contractors and firms that hire them.
I've also been highly active in the IR35 tax space, written books on IR35, and led the Stop The Off-Payroll Tax Campaign (https://stoptheoffpayrolltax.co.uk/). PAC kindly considered my submission dated 12 February 2022 as part of "Lessons from implementing IR35 reforms", where I highlighted the considerable issues with a lack of Offsets provision in the legislation, which, thanks to PAC intervention, has resulted in a legislative fix tabled for April 2024.
My evidence for the 2 November 2023 meeting concerns tax avoidance in the Umbrella companies market. It highlights that HMRC fails to leverage data collated for years, resulting in taxpayers becoming victims to non-compliant umbrella operators.
I have no qualms with umbrella companies as vehicles, as they can fulfil a useful function in the flexible market. My concerns match those expressed by Government bodies and relate to unfair treatment of workers and aggressive tax avoidance schemes.
Dear Committee,
My submission concerns a longstanding lack of a quick-win enforcement opportunity available to HMRC in the umbrella company sector, which they have failed to act upon.
The consequence is unnecessary tax loss for the exchequer (in the millions) and the unnecessary consequence of individuals becoming unwittingly embroiled in tax avoidance schemes and ending up with life-changing tax bills.
Events:
https://www.gov.uk/government/calls-for-evidence/call-for-evidence-umbrella-company-market
Market", was published in June 2023: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1161120/230411_Umbrellas_condoc_HMT_template.pdf
Our key point:
The consultation report (June 2023) stated in 2.17:
"2.16 Respondents to the Call for Evidence suggested that HMRC could use its data sources to better enforce compliance within the umbrella company market. HMRC is considering how the existing Employment Intermediaries return and its data could be improved to help improve compliance."
In plain terms, since April 2015, recruitment agencies have been obligated to submit data about where they are sending monies (for workers not on agency payroll) to HMRC quarterly under the Employment intermediaries reporting requirements, enacted as The Income Tax (Pay As You Earn) (Amendment No. 2) Regulations 2015.
https://www.legislation.gov.uk/uksi/2015/171/contents/made
The data sent to HMRC for the last eight years could be used to cross-check individual taxpayer accounts to confirm that the monies agencies have sent to 3rd party payroll-type firms, like umbrellas, have been correctly processed as employment income and correct taxes paid.
If HMRC put this simple real-time reconciliation in place, red sirens would sound within weeks of disguised remuneration schemes or fraudulent "mini-umbrella" schemes entering the market.
Instead, it appears HMRC may have sat on the data for eight years and done nothing. The consequence is thousands of taxpayers, pushed into umbrella schemes, unwittingly end up in dodgy schemes without their knowledge, and the providers and agencies get away with it.
Why is that?
What has HMRC done with the data reported to them since 2015 to directly help close down disguised remuneration schemes?
What processes have HMRC put in place using this data? And what has it yielded?
How much tax does HMRC estimate is currently being lost due to non-compliant umbrella companies?
What are HMRC going to do going forward, and when?
Will we get legislation for April 2024 onwards?
October 2023