The recruitment body is highly critical of government plans to transfer an umbrella company’s payroll tax debt to employment businesses if the debt was uncollectable from the umbrella. The REC said that the government’s plan was ‘misguided in some of its attempts to maintain tax compliance around umbrella practices’.

A consultation on ways to reduce tax non-compliance such as fraud and disguised remuneration by umbrella companies closed on 29 August. The government is reviewing responses and has not announced any changes to legislation. It is expected that more details will be released at the Autumn Statement in November.

‘Employment businesses should report obvious or suspected tax avoidance to protect temporary workers, themselves and ensure tax is paid,’ said Kate Shoesmith, deputy chief executive of REC, which represents recruitment companies.

‘It is grossly unfair for recruiters to shoulder liability for another company in their supply chain over which they have no control.

‘Unethical umbrellas can open and close overnight, which under this proposal risks leaving employment businesses to try and survive after taking a big and unexpected tax hit.

‘The alarming thing is that it looks like a quick fix – but it will put employment businesses in quicksand. We really want the government to act more broadly, by widening the scope of current regulations to include all employment intermediaries, including umbrellas, and then enforce them.

‘If HMRC is just after a quick fix, they should take simple proactive action such as more cross-referencing of real time information (RTI) and intermediaries’ reports. This could have a significant impact on curbing tax non-compliance. HMRC should also consider reviewing the VAT flat rate scheme and the employment allowance scheme to stop any misuse.’