Abuses of tax concessions for temporary workers are to come under closer scrutiny by HM Revenue and Customs (HMRC).
HMRC has published a business brief on the way that tax, National Insurance and the minimum wage rules apply to temporary workers following concerns that some are being used unfairly or illegally.
Particular attention centres on travel and subsistence schemes.
Under the schemes, temporary workers can claim tax relief on travel and subsistence. However, it is suspected that some employment agencies may be misusing the concessions.
Dispensations have been incorrectly applied, HMRC said, expense claims have been made tax free wrongly, and the minimum wage regulations have been breached
HMRC said that while workers may benefit from some saving in tax and NI contributions, “the major saving is not to the worker, rather to the party who would bear the higher employer’s NI contributions costs if it were not for the arrangement”.
A spokesman added: “HMRC is concerned that many lower-paid workers being paid through such schemes do not understand the arrangement and in many cases are given little choice about being paid through such schemes.”
HMRC warned that it will investigate and challenge employment businesses and umbrella companies which do not fully comply with their statutory obligations.
The Recruitment and Employment Confederation (REC) welcomed HMRC’s brief.
Fiona Coombe, the REC’s director of professional services, commented: “We will be encouraging our members to carry out due diligence on both other labour providers and clients before entering into a supply chain to ensure their reputation is not challenged and to avoid the time and expense involved in dealing with an investigation by HMRC.
“It is also recommended to take expert tax advice in relation to the application of any arrangements already in existence to ensure they are being correctly applied.”