A recent Radio 5 Live broadcast discussed payroll providers and umbrella companies as being immoral in their methods to reduce tax and national insurance contributions by providing a travel and subsistence allowance, hence conducting an immoral service. A couple of comments I would like to make on these allegations:
- Not all payroll providers and/or umbrella companies operate in this manner. Some do and some have, however they have either rebranded themselves, or are yet to be investigated. If you think you may be dealing with a company operating these form of schemes, please call us to look at how we can best help you reduce your risk.
- Genuine business incurred expenses inline with HMRC dispensations are eligible to claim via a reputable provider as long as they are supported by the required receipts and documented evidence that they were for business use only.
What is actually being investigated? HMRC are looking at what a contract worker earns for the work carried out at the end clients site (this would need to be on a comparable rate pay in line with the AWR legislations introduced in October 2011) For example: If a contract worker earns £100 per day, they should be paid against a gross salary of £100 per day. What has been happening in many cases, is either:
- The payroll provider allows for enormous values of expenses, which in turn takes the hourly rate well below the National Minimum Wage (NMW)
- The contractor earns £100 per day, however they are calculated at a rate to be paid NMW with the remainder being made up with ‘direct’ expenses (non taxable) A basic calculation being: 8 hour working day at £6.19 = £49.52 (which they pay tax against) then the remaining £50.48 paid as a direct expense for travel and subsistence.
The second example would mean the agency is involved for the purpose of invoicing. Both of the above examples are where the investigations are taking place. NB: Making sure both tax efficiency and moral ethics are not exploited is by far the most important aspect to a genuine payroll company doing what’s right for their employees. Don’t always do as the agency asks to win the business, we don’t, and we may lose business on this basis, however we will be here long after those who are not doing what is right.