Responding to the government’s consultation on onshore intermediaries, the REC has raised concerns that the proposed legislation will fail to tackle false self-employment.

The REC engaged with member organisations and HMRC representatives throughout the eight-week consultation. The organisation’s senior policy adviser, Ben Farber, expressed concerns that the proposed legislation contained flaws that could actually worsen the problem of false self-employment, jeopardising the growth in UK employment and placing compliant recruitment agencies at risk in the process.

He said: “False self-employment is a whole supply chain issue and any legislation to address the problem must reflect that fact. The lack of any end-user liability leaves significant scope for avoidance and sets this piece of legislation up to fail.”

REC members believe the proposed legislation may drive up labour costs by as much as 25%, which supply chains will struggle to absorb; under such circumstances, end clients will simply resort to using fewer staff. Many large-scale infrastructure projects, with budgets set years in advance, could also be threatened.

Clients may also be tempted to engage with rogue traders who are not compliant with HMRC reporting requirements in the absence of any end-user liability, with the result that lower-skilled workers may be forced away from compliant agencies into the informal ‘cash-in-hand’ economy.

More workers may choose to work as Umbrella Company Employees to ensure they are paying their tax dues, but the REC’s head of legal and professional services, Lewina Farrell, called for a delay in the implementation timetable “to ensure an equitable distribution of costs, hopefully avoiding pay cuts for workers and other unintended consequences”.

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