At an Ernst & Young Service Providers seminar last week Robin Wythes, the leading HMRC employment status policy director, reiterated HMRC’s determination to close down the Pay day by pay day tax relief model still being widely marketed and utilised by agencies and end users with large numbers of workers at or near National Minimum Wage (NMW). HMRC have taken the unusual step of recently publishing two statements warning that these schemes are non-compliant. See http://www.hmrc.gov.uk/news/relief-models.htm Without being able to be more specific, for obvious reasons, Robin assured the audience that HMRC litigation is imminent. I have recently met various agencies who utilise this model and who have been convinced by “Counsel’s opinion” and the assurances of the scheme providers that these arrangements are compliant, and that there can be no comeback on the agency. This is very wide of the mark especially where the workers are retained on the agency’s own payroll and the tax savings are achieved via salary sacrifice in conjunction with a travel and subsistence expenses dispensation. Where the expenses reduce the taxable pay below NMW it is clearly HMRC’s opinion that NMW has been breached. In this instance employers (not scheme providers) can face an automatic penalty of up to £5,000 per worker. In the most serious cases employers could also face an unlimited fine. In addition, workers who have been underpaid will also be entitled to have arrears of the minimum wage repaid based on the current rate. This means that workers will be entitled to arrears based on the current rate even where the underpayment occurred in the past. HMRC can pursue arrears claims for workers going back up to six years. It is clear that anyone still working under this type of arrangement should cease immediately. At ePayMe we have a compliant solution that achieves the same results as these non-compliant schemes and we will be happy to discuss whether this is suitable to you. Please call us today on 0800 622 6119 or 01252 863700 from a mobile phone.