Writing for the Leaders Council, Global Tunnelling Experts UK Ltd Managing Director, Kevin Browning, discusses the impact of tax-avoiding umbrella companies on the infrastructure sector and on individuals, and calls on the government to crack down on the issue.
It is clear to me that we have reached a point where not only is the act of firms using umbrella companies and self-employed individuals bringing unfair competition into the infrastructure sector, but it is also burdening those self-employed people with immense risk and depriving the public purse of Income tax and National Insurance Contributions [NICs] when the country needs them the most as we bid to 'Build Back Better' from the Covid-19 pandemic.
In layman’s terms, umbrella companies effectively act as the employer of agency workers. Agencies like finding people work assignments, they do not relish having to do all the HR/payroll admin for those people on their books, so they essentially outsource this to umbrella companies to deal with instead.
Many of these umbrella companies act within the law and take the welfare of their workers very seriously. The sheer volume of them does make the market hugely competitive for one. However, the issue here is that a number of these umbrella companies are engaging in illicit activity by paying workers in the form of artificial ‘non-taxable’ payments, which are high risk and an act of tax avoidance - simply to save themselves and the employers they work on behalf of money - by not having to pay out Employers’ National Insurance Contributions.
These unscrupulous companies are, therefore, making large profits on the back of sometimes unsuspecting self-employed people by keeping those contributions back for themselves, and it is the self-employed who shoulder a great deal of risk here.
The individual is legally responsible for their own tax affairs and paying the correct amount of Income tax and National Insurance Contributions. As well as the fees people working under umbrella companies may pay to the company itself, illegal arrangements leave them liable to paying extra tax and interest, as well as other penalties.
Individuals who fall victim to tax avoiding umbrella companies are not only in danger of being pursued by HMRC for unpaid tax if the operation is uncovered, but they also risk being ineligible to claim self-employment with the government in future and could even be faced with losing their homes.
The losses in unpaid tax and National Insurance to the public purse is one issue that makes this whole practice morally wrong, but within the infrastructure sector, it is also leaving law-abiding businesses like mine at a huge disadvantage.
By making these illegal savings, companies avoiding tax can offer tenders at least 20 per cent cheaper, and that is a very conservative estimate. With those going by the book having no choice but to ask for more since they pay their taxes and NICs, they are less likely to be awarded contracts.
Our great country and our current government is leading the way in showing the world how to rise up from the recent catastrophic events of Covid by building ourselves out of debt. Our workforce, the people of this great nation who help make this possible, are those left in the firing line when these illicit tax avoiding operations are found. We cannot afford to let them be punished because we turn a blind eye to such things any longer.
I would urge the government to make a clear statement and instruction regarding this issue as soon as possible: either all of us work illegally or we all work within the boundaries of the law to allow for a level playing field. What is going on is damaging competitions in our industries and leaving self-employed people shouldering immense risk, it must not go on.