The Low Incomes Tax Reform Group (LITRG) welcomes the publication of the first full annual strategy from Sir David Metcalf, the Director of Labour Market Enforcement – especially his recognition of the current problems with HMRC’s tax policing of intermediaries such as umbrella companies. LITRG hopes this report will provide a catalyst for more action by HMRC in this area.
The Labour Market Enforcement Strategy 2018/19 is a response to profound changes that have occurred in the labour market in the last four decades. The employment relationship has fractured and the average workplace size has fallen. Trade union membership, the coverage of collective bargaining, and labour’s share of national income have all declined markedly. Hand-in-hand with such changes came the realisation that labour market laws and regulations are not being fully enforced. The strategy follows a public consultation in summer/autumn 2017.
The document sets outs 37 recommendations to improve state-led enforcement of employment rights by Gangmasters and Labour Abuse Authority (GLAA), Employment Agency Standards Inspectorate (EAS) and HMRC National Minimum Wage and National Living Wage team (HMRC NMW) to help stop the exploitation of the UK’s lowest paid workers. They include enforcing holiday pay, locally or regionally piloting licensing of hand car washes and nail bars, which have been identified as sectors at risk of labour exploitation, and making it the law that employers must provide a payslip for all workers.
While tax is not formally part of Sir David’s remit, he highlights that there are significant issues around non-compliant intermediaries and that there is a gap in enforcement, both for protecting worker rights and around tax avoidance. The lack of an effective tax enforcement, in particular, has been concerning LITRG for some time, and certainly since they published their report looking at pay-day-by-pay-day umbrella schemes, in which they highlighted that HMRC were pursuing individual workers for unpaid taxes, rather than their unscrupulous employers.
LITRG Chair Anne Fairpo said:
“We are pleased to be able to contribute to Sir David’s work through his ‘intelligence hub’ and have been impressed by the lengths to which he and his staff have gone to understand the inner workings of the labour market and the true extent and nature of non-compliance. He has a good measure of the risk areas and priorities. We would urge the Government to consider this when responding to Sir David’s report later this year.
“Even though Sir David’s remit does not cover tax enforcement, one of his recommendations is that the GLAA, EAS and HMRC NMW/NLW team should work closely with the relevant HMRC tax enforcement teams to share information about non-compliant intermediaries that they identify through their enforcement work. He says that the relevant teams in HMRC should take effective action against such organisations, ensuring that successes are widely publicised to demonstrate that the enforcement environment is changing.
"This should provide food for thought for HMRC’s tax enforcement teams.
“It has long been our view that the low paid require their positions to be protected through effective state enforcement and this must include HMRC’s tax enforcement function. Indeed, the lack of visible and effective enforcement by HMRC at the lower end of the market is a recurring theme in our responses to the Government’s ‘Good work’ consultations and we have set out some of our main areas of concern in the first of our responses on agency workers. We hope that this report will provide a catalyst for more action by HMRC in this area.”