The General Election is upon our heels, political parties have released their manifestos, and the Labour party have proposed a measure that could change the face of self-employment.

IPSE have also released their general election manifesto calling for a bespoke tax system for the self-employed, fair parental benefits, and IR35 damage control. The Work and Pensions parliamentary committee have also published a report into the rights, benefits and employment status of self-employed professionals.

So, it’s fair to say that self-employment has consistently been on the political agenda since the Spring Budget was announced. The key change that has caught the eye of industry experts, and self-employed professionals has been Labour’s ban on unscrupulous umbrella companies.

What’s Labour’s Umbrella ban?

The party led by Jeremy Corbyn has pledged to ban umbrella companies, also known as payroll companies. On page 51 of the Labour manifesto, it reads:

“Self-employment can bring many benefits, freedoms and flexibilities to people – and is a vital and often entrepreneurial sector of our economy. But there is also mounting evidence that workers are being forced into self-employment by unscrupulous employers to avoid costs and their duties to workers.”

The manifesto draws criticism around what Labour call, ‘bogus self-employment’ by “banning payroll companies, sometimes known as umbrella companies which create a false structure to limit employers’ tax liabilities and limit workers’ rights.”

Labour are planning to ban umbrella companies, but it is unclear whether they are addressing every umbrella company, or just those failing to comply with existing rules.

Industry Reaction

This proposed measure has drawn criticism from industry academics, and it has been branded as ‘ill-thought out’. On the other hand, it has been welcomed by some umbrella companies as the move prevents self-employed workers from being exploited.

Julia Kermode, CEO of the Freelancer and Contractor Services Association (FCSA), said that the government should focus on ensuring that umbrella companies comply with current legislation, rather than outright banning them.

“In an unregulated industry, we acknowledge that there is poor practice within the sector, which is why FCSA is committed to raising standards,” said Julia Kermode.

“Rather than a wholesale ban, which only demonstrates a lack of thought, consideration and understanding on their part, we would look to work together with Labour policymakers on initiatives that promote compliance and truly support workers that choose to work through umbrellas.”

Umbrella companies contribute in excess of £3bn in NIC and tax to the Exchequer, and an estimated 450,000 workers use Umbrella payroll services.

The Labour Defence

The Labour party have criticised current rules in relation to umbrella companies, addressing them as ‘outdated’. In addition to this, the latest parliamentary report into self-employment found that “it is clear that current ways of categorising workers are creaking under the weight of the changing economy.”

The party have pledged that, if elected, they would extend employee rights to all workers, including shared parental pay, hoping to improve the quality of life of self-employed professionals across the country.

Labour have recognised that the law is struggling to keep up with ever-changing new forms of employment, so as a remedy, they would establish a new statutory definition for self-employment, as championed in IPSE’s manifesto.

In addition to this, they would form a dedicated commission to modernise law, made up of legal and academic experts from industry, and unions. The general election is set to take place on Thursday 8, June 2017, which will ultimately decide the future of Umbrella companies.

For a full summary of IPSE’s manifesto for the General Election, A Contract With the Self Employed, read General Election 2017 – What’s in it for the self-employed?

At Gorilla Accounting, we proactively inform our customers on upcoming legislation changes, as part of ourall-inclusive accountancy packagefor just £85 plus vat per month.If you would like to find out more about our Limited Company or Umbrella service, get in touch by calling 0330 024 0406 or email info@gorillaaccounting.com