HMRC declares relief model “non-compliant”

HMRC has published a warning for employers, umbrella companies, employment businesses and labour providers who have adopted the new ‘pay day by pay day’ travel and subsistence business model.

Last month HMRC published a warning for employers, umbrella companies, employment businesses and labour providers who have adopted the new ‘pay day by pay day’ travel and subsistence business model.

The relief model affects temporary workers engaged in overarching employment contracts who incur tax deductible travel and subsistence expenses under section 338 of the Income Tax (Earnings and Pensions) Act 2003. These workers are then paid a gross pay which is intended to be compliant with the National Minimum Wage.

However, rather than subjecting this gross pay to Income Tax and National Insurance, the employer applies ‘relief’ tax and National Insurance contributions to the amount of expenses which the employee has incurred each pay day. The effect of this is that only the balance is subjected to Income Tax and National Insurance.

As Income Tax (PAYE) is an annual tax, HMRC have now declared that employers operating such a model are not accounting for the correct level of tax, nor are they adhering to the correct National Insurance contributions: the Social Security (Contributions) Regulations 2001 do not provide for a deduction from earnings, where the employee meets the travelling expenses out of total income/earnings.

HMRC are currently identifying those businesses operating ‘pay day by pay day’ relief models. The tax authority stated “Workers/businesses concerned about such models can provide HMRC with details, in confidence”.

Addressing umbrella companies, the Revenue said that they should consider whether their business model is compliant with tax and National Insurance legislation, and if in doubt should seek advice by directly contacting either tax officials or “professional advisers.”

In the meantime all contractors employed under umbrella companies must start asking probing questions, to determine how much they are paid and what for.

Register for Updates

Register to receive news updates straight to your inbox.
  • We will only send you marketing information using the details you have provided to deliver, develop and promote our products and services if you give us consent to do so. Please use the options below to indicate if you consent to us using your information for this purpose. For further information please read our privacy notice.
  • This field is for validation purposes and should be left unchanged.

Newsletter

Sign up to our newsletter
  • We will only send you marketing information using the details you have provided to deliver, develop and promote our products and services if you give us consent to do so. Please use the options below to indicate if you consent to us using your information for this purpose. For further information please read our privacy notice.
  • This field is for validation purposes and should be left unchanged.

Technology Form

  • We will only send you marketing information using the details you have provided to deliver, develop and promote our products and services if you give us consent to do so. Please use the options below to indicate if you consent to us using your information for this purpose. For further information please read our privacy notice.

Get in touch with us

We're ready to show you the future of consulting. Just fill out the form below!
  • We will only send you marketing information using the details you have provided to deliver, develop and promote our products and services if you give us consent to do so. Please use the options below to indicate if you consent to us using your information for this purpose. For further information please read our privacy notice.

PPI Case Handler Profile

Complete your details below to receive our PPI Case Handler profile.
  • We will only send you marketing information using the details you have provided to deliver, develop and promote our products and services if you give us consent to do so. Please use the options below to indicate if you consent to us using your information for this purpose. For further information please read our privacy notice.
  • This field is for validation purposes and should be left unchanged.

Subject Access Request

    We require basic personal details to locate you on our records.

Request to Delete your Personal Data

    We require basic personal details to locate you on our records so we can delete your information.

Request to Withdraw Opt-In

    We require basic personal details to locate you on our records.