Taxman to get tough on umbrella companies

Umbrella companies are prohibited from using travel or food expenses to make up employee pay under an amendment to national minimum wage (NMW) rules introduced last week.

Applying to pay reference periods after January 1st 2011, the change affects temporary workers who use umbrella businesses or employment businesses using travel schemes.

Typically, the scheme provider claims to provide savings to the employer, and often to the employee, while at the same time saying their offering is within the NMW rules.

But “none of the models” which the tax or business departments have come across comply with the updated legislation, indicating “appropriate” enforcement action is needed.

Of those umbrellas, which may substitute food for travel expenses or classify workers as directors, HM Revenue & Customs added that they operate against the state’s intentions.

Other umbrella companies seen to be going against Parliament’s wishes were also threatened in HMRC’s latest update , even if its workers are unaffected by the NMW framework.

“Where compliance action also identifies non-compliance with tax legislation, Employment Businesses and umbrella companies run the risk of having their dispensation revoked”, HMRC said.

Such action, it warned, can be “in addition to paying arrears of tax and National Insurance together with interest and, where appropriate, penalties.”

Workers with concerns that their umbrella company may be breaking the rules, relating to the NMW or tax, were invited to contact Revenue officials in confidence using a form on HMRC's website.


Further Reading: More information on contractor expenses here.

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