Employment and Immigration | UK Regulatory Outlook April 2024

UK government makes announcement on tackling non-compliance in the 'umbrella' companies market

The UK government has announced as one of its annual Tax Administration and Maintenance Day actions that it will publish its response to the "umbrella" consultation "in due course". Umbrella companies, staffing suppliers, end users and contractors will now have to wait to find out what, if anything, the government will do to regulate the umbrella market.

The announcement provides little detail about the likely outcome of the consultation other than to confirm that the government will publish guidance later this year to support workers and businesses that use umbrella companies, including an online pay-checking tool to help umbrella works to check whether the correct deductions are being made from their pay.

The announcement also hints that its preferred option is to introduce a statutory due diligence regime for businesses that use umbrella companies, but that it needs to work further with the recruitment industry to understand the impacts of this approach and whether it would reduce umbrella non-compliance. Read more in our Insight. Also see the recording of our Eating Compliance for Breakfast webinar on this announcement.

New Vento bands

Together with the other changes that came into force this month (see our previous Regulatory Outlook), new Presidential Guidance on Employment Tribunal awards for injury to feelings in line with the Vento bands has been published. For claims presented on or after 6 April 2024, the Vento bands are as follows:

• A lower band of £1,200 to £11,700 for less serious cases;
• A middle band of £11,700 to £35,200 for case that do not merit an award in the upper band; and
• An upper band of £35,200 to £58,700 for the most serious cases. The most exceptional cases are capable of exceeding £58,700.

These new bands will need to be considered when assessing the financial liabilities associated with a discrimination claim where an award for injury to feelings is sought.

Labour's plans to crack down on tax avoidance and close the tax gap

Rachael Reeves, the shadow chancellor, has pledged to close the gap between tax owed and tax collected if the Labour Party wins the next election (which opinion polls suggest is likely).

In 2021/2022 that gap is reported to have been £36 billion, up from £31 billion the year before. The number of civil investigations into tax fraud by HMRC is stated to have fallen by more than half in five years. Part of the £5.1 billion a year, which Ms Reeves aims to raise by the end of the next Parliament by cracking down on tax avoidance, will be used to pay for Labour’s plans to bring down NHS waiting lists and introduce breakfast clubs in every primary school.

To achieve her aims, she has announced funding of an additional £855 million a year into HMRC to digitalise and modernise it and to boost the number of HMRC compliance officers by up to 5,000. With more HMRC fire power and planned legal and regulatory changes (including widening the range of reportable tax schemes under the disclosure of tax avoidance schemes regime), there is likely to be greater HMRC focus not only on umbrella companies but also on IR35 and other tax compliance. This inevitably has serious implications for the staffing and workforce solutions sectors and those who use their services.

We are entering the fourth year following the implementation of the Off-Payroll rules in the private sector. Four years is the time window HMRC has for investigating taxpayers suspected of making innocent errors. Customarily it waits until the end of that period before launching any investigations, thereby maximising the period over which it can look back. If an error is deemed to have been careless or negligent it can look back over a further two years and, where there is suspicion of deliberate tax evasion, the period over which HMRC can investigate increases to 20 years. So staffing companies and end user clients should not take comfort from any perceived absence of HMRC activity thus far. The sensible money is on those who ensure they have robust processes in place, not only to assess the IR35 status of contractors' working arrangements but also to regularly review those processes and to record the steps taken, so that if and when HMRC does come looking, the records and procedures tell the right story.