The HMRC published guidance for recruitment firms engaging with umbrella companies.

The guidance is designed to equip agencies with the knowledge they need to identify tax avoidance schemes posing as umbrella companies.

HMRC’s guidance also outlines the role that umbrella firms play in enabling the placement of temporary workers. Furthermore, the guidance covers due diligence recruiters are advised to carry out before engaging one of these businesses.

It also calls for working within the law and supporting workers.

“Workers can find being employed by an umbrella company confusing and working for a non-compliant umbrella company can cause them problems,” the HMRC states in its guidance. “Supporting workers can mean you’ll receive fewer queries, improve compliance in your supply chain and help protect your business’s reputation.”

It calls for explaining how the workers will be employed, clarifying pay rates, and provide workers with a Key Information Document under the Conduct Regulations 2003.

The HMRC also warned of the consequences for non-compliance.

The guidance has been criticised with Julia Kermode, CEO of umbrella company compliance specialist, PayePass, calling the guidance on umbrella companies ‘basic at best’.

“With tax avoidance schemes getting smarter and continuously exploring new ways to lure in recruiters and workers, this document is nowhere near comprehensive enough,” Kermode said. “It’s all straightforward, widely understood guidance that won’t stop a recruitment agency from falling into the trap of engaging a non-compliant umbrella company.”

“I would say I’m surprised by the government’s alarming lack of action, but in truth, it’s an all too familiar story. Rather than taking action – and by this, I mean regulating the umbrella industry and holding those facilitating tax avoidance responsible – the government continues to sit on its hands. As far as I’m concerned, half-baked guidance like this is little more than lip service,” Kermode added.

“It’s been seven long years since the government promised to regulate the umbrella industry and nothing has been done about it. While this document will point recruiters in the right direction, agencies should take matters into their own hands and prioritise compliance themselves – otherwise, they leave themselves and the workers they engaged, exposed,” Kermode concluded.

Earlier this year, the government published a consultation on policy options to regulate umbrella companies and to tackle noncompliance in the umbrella company market.

The government has previously said it is already acting to improve the operation of the umbrella company market. Among these actions include naming and shaming firms as tax avoidance scheme promoters.