HMRC umbrella company ‘checking tool’ looms for workers

HMRC is close to publishing a response to the findings of its consultation on umbrella company non-compliance, which ran in summer 2023, as well as new guidance. A new ‘checking tool’ for workers within umbrella companies will also be launched.

The government “remains concerned about the scale of non-compliance in the umbrella company market, and the detrimental impact that this has on workers, taxpayers and the labour market”, HMRC said in a statement released on 18 April for Tax Administration and Maintenance Day 2024. 

HMRC explained the government consulted on options to reduce tax non-compliance in the market until 29 August 2023, which also included its response to the call for evidence on the umbrella company market that closed on 22 February 2022. 

As well as releasing a response to its 2023 consultation “in due course”, HMRC announced that it would publish new guidance later this year for those using umbrella companies. This will include an online pay-checking tool to help umbrella company workers to ascertain whether the correct deductions are being made from their pay. 

“The government is minded to introduce a due diligence requirement to drive out bad actors from labour supply chains,” HMRC continued. 

The tax authority’s statement said the government “will continue to engage with the recruitment industry and other key stakeholders” on the detail of a statutory due diligence regime for businesses that use umbrella companies. This aims to ensure that the government fully understands the impact a statutory due diligence regime could have on reducing umbrella company non-compliance. 

VAT relief on charitable donations 

The government also announced that, before 23 July 2024, it will launch a consultation on VAT relief on everyday charitable donations. The government hopes this new targeted relief will encourage charitable giving. It will apply on low-value goods that businesses donate to charities, for the charities to give away free of charge to people in need. 

Currently, businesses do not pay VAT on any donated goods that are then sold on, such as clothes, hygiene supplies and cleaning products – but if these goods are distributed free of charge to those in need, instead of sold, then VAT must be paid. Nigel Huddleston, financial secretary to the Treasury, said the government “want[s] the tax system to support donations to charity, not work against it”. 

The consultation will run for 12 weeks, and the proposals have been welcomed by some business groups. Helen Dickinson, British Retail Council chief executive, expressed her hope that “the consultation into the unequal tax treatment … will result in a meaningful change that will boost the charitable work of business”. 

Meanwhile, Andy Scott, Confederation of British Industry principal tax adviser, called the current status a “VAT penalty on donated goods”, adding: “This progressive step aligns with our calls for a smart tax system that incentivises corporate social responsibility, and cuts red tape for businesses wanting to contribute their unsold stock to good causes.” 

Other consultations 

The government has also published a consultation document on the VAT treatment of private hire vehicles, which closes 8 August 2024. Views are invited “on potential government interventions that could help to mitigate any undue adverse effects” on the private hire vehicle sector and its passengers. 

The consultation, published jointly by HMRC, HM Treasury and the Department for Transport, will look at the potential tax impacts of two recent High Court cases: the Uber Britannia Limited v Sefton Borough Council judgement that was handed down on 28 July 2023, and the Uber London Limited v Transport for London judgement that was handed down on 6 December 2021. 

The government has also published draft regulations that provide for a reporting change for the Freeport and Investment Zone employer National Insurance contributions (NICs) reliefs. 

The legislative change – which the government wants to bring forward to allow software developers to make changes ahead of implementation – will help reduce employer error, the government says. Views on this HMRC technical consultation should be submitted before 15 May 2024. 

The legislative change will mandate employers operating in a Freeport or Investment Zone special tax site to provide their employee’s workplace postcode to HMRC if they are claiming the relevant secondary Class 1 National Insurance contributions (NICs) relief through their payroll, in due course. 

NICs relief will be conditional on 60% of the employee’s working time being in the tax site. 

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