In a scheduled update from the government on its plans for tackling non-compliance in the umbrella company market last week, HMRC made clear its intention to regulate the sector. The update moots a new statutory due diligence regime for businesses that use umbrella companies, following further engagement with stakeholders.

The details on what regulation will look like are limited at this stage, but the PCA is reassured that some form of statutory intervention is on its way, with the emphasis on due diligence.

The announcement came as part of a package of technical tax policy proposals published on 'Tax administration and maintenance day' (18 April), which intend to make the tax system fairer and tackle non-compliance. Within the proposals, the government expresses that it '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', affirming that a new due diligence requirement will be designed to 'drive out bad actors from labour supply chains'.

Just three days later, on 22 April, HMRC has published new guidance entitled 'Warning for employment agencies using umbrella companies', reminding recruitment businesses of their due diligence responsibilities and with advice on identifying if an umbrella company may be operating a tax avoidance scheme.

Carrying out effective due diligence is extremely challenging, with fraudulent operators, by design, very hard to identify and root out. This is where organisations like the PCA are essential, because we fulfil this due diligence role on behalf of recruitment businesses. Our umbrella company members are thoroughly and repeatedly audited by an independent global accounting firm to ensure they are transparent, ethical, and truly legitimate payroll operations.

We look forward to hearing more about what the statutory due diligence regime may look like, including the penalties for non-compliance, and putting forward our own views. The government has also indicated that a response to its latest consultation on the umbrella company market will come 'in due course' and that it plans to release an online pay checking tool for workers so they can make sure the right taxes are being deducted from their pay.

The PCA will continue to monitor, reflect and engage on policy developments as the new statutory due diligence regime takes shape.