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.