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Travel and Subsistence schemes Knee jerk reaction threatens to undermine umbrella sector

Travel and Subsistence schemes – Knee jerk reaction threatens to undermine umbrella sector

Over the past week, several industry commentators have jumped aboard the “tax avoidance” bandwagon, a stance which threatens to undermine confidence in the umbrella company sector.

The reason for the explosion of comment centres around the “Pay Day” payroll model used by umbrella companies and recruitment agencies to ensure that low-paid workers can receive tax and NI relief on expenses, which actually qualify for such relief under existing legislation.

This is the same relief which is available to higher paid workers who work for the same umbrella company employer or who participate in salary sacrifice arrangements. Taxable pay under both models is calculated by reference to a slightly different payroll calculation but has the same outcome – reduced tax and reduced NIC.

In fact, an employment agency which seeks to remove a “Pay Day” arrangement is likely to receive several complaints from its low-paid employees who will be significantly worse-off.

The use of an umbrella company is certainly not illegal. A well-run travel scheme under a salary sacrifice arrangement is also not illegal nor is it tax avoidance when qualifying expenses are used to calculate taxable pay.

The PAYE Regulations and Social Security Regulations are clear on this point – HMRC must ensure that a mechanism is available to ensure that the correct amount of tax is due in the pay period and qualifying business related expenses are not “earnings” for the purposes of NIC.

I urge all commentators to examine the appropriate legislation and reflect on the fact that low paid workers actually receive considerable benefit from the Pay Day payroll model before staking their claim to sit on the moral high ground.

The technically incorrect judgement in the GLA case (at which HMRC did not give evidence) has clearly fuelled the fire around travel schemes, which may result in a few burnt fingers following the upcoming judicial review.

Alan Nolan – Aspire.


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