Employment Agency Act 1973
Surely it would be very simple to insist that all umbrella companies must be compliant under that act? That would solve the issues raised or at least problems where a company is actually registered in the UK.
MPs in the UK’s Parliament decided not to select amendments to the 2021 Finance Bill designed to offer contractors protection from rogue umbrella companies accused of skimming off pay and holding back holiday pay. Last week Conservative MPs David Davis, Sir Iain Duncan Smith, and Andrew Rosindell proposed changes to the UK's …
"The issue is that umbrella firms are not currently regulated"
The real issue is that contractors are forced to put themselves in the hands of a crowd of unscrupulous unregulated intermediaries that are actually skipping more tax unlawfully than the entire body of "personal service companies" ever avoided lawfully. There's actually no objective justification for umbrella companies to exist at all.
However HMRC don't care as this is politics, not revenue protection. Government doesn't like ordinary folk to exercise independence, so as far as HMRC is concerned the ideal is for everyone to be on a PAYE contract of service. Not only would this be "politically correct" but it simplifies the life of HMRC, who frequently seem to have difficulty even doing basic arithmetic.
One rule for me, one for "them"... All of the contracts (with agencies) I have had in the last 7 years have required me to operate via an English or Scottish company and be majority controlled by me.
But if you're a recruiter, you can insist on a brolly who's structure is entirely at your own discretion... e.g. micro brolly in the Philippines etc.
The companies are registered in the UK, and have a UK director at first. The director's recruited money-mule style to receive and pass on letters from Companies House and HMRC, in one example receiving £150 per company.
Once all is set up, the UK director resigns and an overseas director is appointed, making them even more difficult to pursue than a UK director (who'd still have some limited-liability protection anyway unless they could be proved to be acting criminally).
The beeb did an excellent show on Radio 4 about this a little while ago.
It seems there are benefits, loopholes and exemptions on some charges for "smaller" companies.
Large organisations use an agency to get their large number of temp workers, eg for the Test and Trace and Vaccination programmes. Those agencies then sub it out to other agencies who than hire people but "employ" and pay them through 10's of 1000's of "micro companies" who are registered in the UK for a week or two before having a transfer of ownership to a director in the Philippines. These "directors" usually have no skills or qualifications other than to occasionally fill out official online forms and get a couple hundred quid a year (a lot over there) and may well be directors of multiple companies.
It's all technically legal and is costing the UK £billions in tax avoidance (Note, not evasion, that would be illegal)
The whole IR35 thing is a tiny part of this whole legal mess.
Also independent truck drivers, hairdressers, translators, plumbers, electricians, voice actors, plasterers, music teachers, and so on.
The focus is naturally IT because this is an IT-focused site, but the implications of IR35 and all of this other gubbins are far broader than your own narrow view seems to take in.
Surely its the responsibility of the person being contracted to make sure the company being used is legit. A quick review of the information held about the company by companies house will reveal the directors new and old, their revenues and financial history. If there's just one director who has changed recently don't use it. It's reasonable to think that if a contractor is choosing using a shady company, they are trying to get one over HMRC and maybe trying to avoid paying their share of tax. I have no sympathy for such behaviour and it seems MPs don't either. This will be self-regulating and more regulation is not needed.
If you're a well-paid IT contractor, you may have a valid argument (though not a good one - limited liability is supposed to be a privilege and you shouldn't be offering it on the basis that a substantial proportion of those taking advantage of it will be "shady").
In the case of a lot of low-paid, zero-hours contractors they really don't have much choice: they're told who they'll be employed by and if they don't particularly want to work for Probably Legal Consolidated Tax Avoidance Company (516234b) Ltd, their only other option is not to work for anyone.
Agency staff are forced to, however.
Many (possibly most) umbrella companies are contracted to agencies, and are the supposed employers of all the agency workers the agency provides.
That's mostly low-paid, on zero-hour contracts.
The major car manufacturing company that my SO works for has selected which umbrella companies will be dealt with, so my SO has that limited choice as to which umbrella they use. They cannot be the only company operating in this way.
There can be various benefits/tax incentives available for companies with a small number of employees.
It can make sense, if you have say 2,000 employees, to divide these up into 3 smaller companies, which can then each take advantage of these benefits.
No doubt making these on-paper companies be overseas has other benefits, perhaps regarding tax and/or employment law.
Note - 'benefit' as used above should not be interpreted as benefit for the worker.