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Using existing laws to tackle what the state laments as umbrella companies’ “widespread abuse” of expenses polices will be better than creating new legislation from scratch. The majority verdict that root-and-branch reform to umbrella workers’ tax relief on travel would be damaging, at a time of labour market pressures, came from contracting experts last night. It was sounded to CUK by business advisors, who betted there was a “50:50 chance” the Pre-Budget Report will action the state’s word of tackling workers’ overarching contracts. Treasury officials complain such contracts allow “some temporary workers to gain tax relief for travel expenses not available to others working in similar circumstances.” In consultation, they said 120 employers abuse these contracts, typically by using tax-free expenses payments in lieu of workers’ pay, even if expenses were not incurred. Underlining the case for sharper rules, freelance contractors point out that under dispensations from HMRC, such practices are entirely legal despite being unintended. If current laws remain unchanged, Treasury officials worry more temporary workers will opt for agencies or umbrellas using overarching contracts purely to gain their tax relief. Since the consultation, Alistair Darling’s next PBR, due imminently, has always been seen as the best place for proposals, said Martin Hesketh of Brookson, which consulted with officials. “Based upon the interaction we have had with HM Treasury and the current political and economic environments, we would expect the government not to fully withdraw tax relief for umbrella workers in the PBR. “It seems more likely that the government will leave things as they are and endeavour to police the existing system more effectively or may ‘tighten up’ the current regime for tax relief.” Observers warn that a clumsy response from the government will hurt workers who tend to be on lower temporary incomes and currently want help, not new rules, from policymakers. So-called ‘lighter touch’ measures could include introducing a standard model for ‘unreceipted expenses,’ or a requirement for all expenses to be evidenced if claimed. In its submission to officials, the Service Providers Association, whose members are JSA, Brookson, Giant, Parasol and Paystream, proposed an obligation on umbrella companies to disclose all expenses and tax relief gained. While such a proposal would enshrine transparency, Mr Hesketh said that the current temporary workplace rules should provide sufficient grounds for officials to stamp out abuse. “Fundamentally, the current legislation, if policed properly, would create a fair and compliant marketplace,” he said, pointing to the 1998 rules, and HMRC guidance (2004). “We…hope that they [HM Treasury] have decided to fully enforce the existing legislation to tackle the current non-compliance”. However, the proposal for a standardised dispensation for all umbrellas would be an easy way for the PBR to address questions over their expenses, said Simon Dolan, of SJD Accountancy. There was a 50-50 chance the PBR would continue the “clampdown” on umbrellas, he said, perhaps using an “across the board” dispensation that would flag up sums claimed outside it. Yet given the extraordinary pressures in the current labour market, he also said the government may well defer any action and instead announce a further period of consultation. This course of action was made more credible yesterday, when a spokesman for HMRC explained: "HMRC is currently reviewing the responses to the consultation and as such no view has yet been reached." Meanwhile, supporting the PCG's call that officials should focus on the dispensation system by enforcing its rules better, one legal expert said the state already has enough powers to tackle umbrellas’ non-compliance. “HMRC itself has caused much of the perceived problem, by issuing dispensations in terms which are inconsistent, and thus giving some providers unfair and arbitrary advantages over others,” said Roger Sinclair of Egos. “This can perfectly adequately be dealt with by HMRC itself, in exercising its powers (to grant dispensations, and in the terms of the dispensations they grant) in a more consistent manner, which we have already seen sign of, in dispensations issued during the current year.” He added: “The fact that some umbrellas may be abusing the dispensations they hold is something that can perfectly adequately be dealt with by HMRC under its existing powers.” Nov 12, 2008 Email this article Printer friendly page Previous Page
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