The end of dispensations
The legislation will apply where employees would have been eligible for tax relief if they had incurred and met the cost of the expenses or benefits themselves. However the exemption will not apply where expenses are paid as part of a salary sacrifice arrangement.
This legislation will effectively separate pay day by pay day scheme providers from bona fide umbrella companies as the former assign a proportion of salary as & lsquo;expenses’ regardless of whether a cost has been incurred whereas the latter reimburses incurred costs which have been evidenced to the umbrella company. The further implication for the industry is that recruiters will no longer be able to rely on production of a dispensation by an umbrella company as evidence of compliance. Rather, they will need to focus on the over-arching Contract of Employment that the umbrella company has in place and the internal audits that take place to ensure that expenses are allowable. This will be in addition to the checks that are required to ensure that the umbrella company complies with their obligations under the Agency Worker Regulations that all their employees’ earnings are subject to PAYE.
Lucy Smith, founder member of All Umbrella Companies Are Equal, commented, “An umbrella company having a dispensation in place has never been a true indicator of compliance as it is only indicative of compliance at the point that it is issued HMRC can revoke a dispensation at any time if it is not being properly applied. Compliance has come to mean much more over the last couple of years and has become more of a burden for recruitment agencies who have to spend a great deal of time and money constantly reviewing their PSL’s as legislation changes. This is why AUCAE have introduced a PSL review service which has already been successfully utilised by a number of major players in the industry – we can remove much of the burden giving recruiters time to focus on recruiting!”