The UK loses around £400m per year to marketed tax avoidance and there are widespread concerns that freelance workers are being duped into signing up to umbrella companies and frequently face punitive tax bills as a result of non-compliance on the part of third party agents.

Tighter laws will be introduced to regulate the sector but the government ruled out calls to ban umbrella companies, saying that an outright ban would not be a ‘proportionate response’.

In most cases, the umbrella company employs staff and pays their wages through the PAYE system while staff carry out work for the agency’s clients. The government estimates that there are up to 1.7m temporary workers in the UK, many of whom use employment intermediaries to secure work.