In our first report in this series we concluded by stating:

This failure [to use the data and enforce compliance] raises a fundamental question about HMRC’s approach to compliance—is it finally ready to use the data at its disposal to enforce rules in real-time, or will it continue to play catch-up? The future of the umbrella market, as well as general tax compliance, may well depend on the answer.

Over the years, I have lost count of the hours spent answering Discussion and Consultation Documents on a raft of proposals aimed at the sector. We are not the only ones, and there now seems to be a growing body of evidence that this is no more than HRMC ‘following the process’ rather than an open and genuine attempt to get to the bottom of the issue and come up with the right answer.

This would be the only way that the real issue can be identified and a long term robust and sustainable answer can be delivered.

This failure has resulted in a ‘sticking plaster approach’ to legislation that focuses on outcomes rather than root causes.

Over the 20+ years I have operated in the sector this approach has done no more than create a series of unintended consequences, often making the issue worse. For how long will Governments, directed by their Civil Servants, keeping doing the same thing and expect a different outcome?

There is almost an even larger body of evidence that shows HMRC and HM Treasury are ignoring the many warning signs highlighted by expert commentators at these stages. I could list a raft of ‘sticking plasters’ applied that all held warnings of increased non-compliance but I will spare you that ordeal. In summary what happened was the sticking plasters were applied, non-compliance increased and another sticking plaster was added.

Whilst non-compliance in the umbrella sector has been a feature battled with for many years, the boom came at the implementation of the Off-Payroll Working Legislation. Everyone warned Government that the prescribed process of implementation would create a cliff-edge drop for a significant number of workers. This drop, estimated by many to be between 30%-50%, would create a vacuum that would allow many non-compliant providers to enter the market.

It was also emphasised that unless HMRC had a robust plan of enforcement to stamp out these situations quickly they would escalate at pace. We highlighted the importance of using the data they held, RTI and Intermediary Reports, to identify any provider that either disregarded the rules or clearly not operating as intended.

HMRC’s track record of enforcement in this sector has been underwhelming at best. Professional Passport has regularly criticised HMRC’s focus on targeting individual taxpayers rather than scheme promoters, the ‘snakes’. We have highlighted how enforcement efforts, such as those related to the Loan Charge, have disproportionately harmed workers while leaving the architects of the schemes unscathed. The irony is glaring: those with legal and financial muscle evade consequences while contractors are left to foot the bill.

It is therefore no surprise to us that HMRC regularly cite, Healthcare, Social Care and Education as sectors with high volumes of non-compliance. These sectors were the ones that had high levels of workers facing the cliff-edge drop in earnings HMRC was warned about. With no enforcement strategy non-compliance flourished and created what we see today.

The money that can be made by the non-compliant operators is significant and with little, if any, consequences being taken against the ‘Bosses’ of these groups they get to keep their ill-gotten gains at everyone else’s expense.

During the years following the implementation of the Off-Payroll Working rules we have seen the ‘snakes’ operating in the sector multiplying at an alarming rate, with nothing in place to stop this. Until HMRC start cutting the heads off the snakes the problems will continue.

HMRC’s current approach plays in to their hands and unless HMRC change their approach and proactively use all the data available any changes to legislation will be, once again, no more than a sticking plaster as the snakes will just adapt.

Until HMRC shifts from passive observation to active enforcement, the “ugly” side of the sector will continue to thrive in plain sight.