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The LITRG is calling on HMRC not to pursue individual workers for underpayments arising from their involvement in arrangements between engagers of their labour and intermediaries, such as umbrella companies.

Introduction

LITRG is responding to HMRC’s consultation on restricting tax relief for travel and subsistence for workers employed through employment intermediaries. The Government is proposing to remove tax relief for home to work travel and subsistence expenses for workers who are:

1. supplying personal services, 
2. engaged through an employment intermediary (e.g. umbrella companies and personal service companies) and 
3. subject to supervision, direction or control of any person.

Changes are due to come into effect in April 2016. At present workers may receive a part of their pay from the employment intermediary on the basis that it is reimbursement for tax-relieved travel and subsistence expenses so the workers receive the gross amount without any deduction of income tax or national insurance. HMRC’s proposals will restrict such relief in most circumstances, meaning that income tax and national insurance will be expected to be paid on the 'expenses' payments.

LITRG concerns

It is the LITRG’s experience that claims for such relief are prone to abuse. HMRC investigate the claims and establish that the payments for travel and subsistence are not eligible for relief; HMRC then often seek to recoup the resultant tax underpayments from the worker rather than from the intermediary or engager of their labour.

LITRG want it explicit in the new legislation that individual workers can no longer be pursued for tax underpayments arising in these circumstances, principally because they too often get caught up in complex employment triangles involving employment intermediaries and employment agencies, which are not of their choice, liking or understanding.

LITRG research on travel expenses for the low-paid

LITRG’s research has found that the people most affected by arrangements involving intermediaries tend to be low-skilled, with low levels of educational achievement, and to be predominantly from younger age-groups. Minority ethnic groups are also over-represented in terms of agency working. The complexity of the arrangements makes individuals in these groupings particularly vulnerable where tax relief is over-claimed by intermediaries operating their pay.

LITRG believes that both the company where they are working at any one time and the employment intermediary should be targeted for any clawback. The company and intermediary should be jointly and severally liable for any inaccuracies and should be pursued for any debt.

Calls for a more radical change

The vast majority of individuals affected by the changes HMRC proposes are low-paid. HMRC and the Department for Work and Pensions should consider an alternative means for assisting low-paid workers with work-related travel costs to mitigate any effect the changes will have on a claimant’s benefit and tax credit payments, and provide some recognition for essential work travel costs. For example, an amount could be deducted for travel when calculating someone’s entitlement to tax credits or Universal Credit. This is vital when an individual’s benefits can be restricted or stopped if they refuse employment.

It is essential that any changes do not affect the current relief for expenses incurred in the normal course of an employee’s duties. In particular, such relief must continue to be available for employees who pay such expenses personally out of their wages rather than receiving reimbursement from their employer.

Useful links

LITRG submission on HMRC’s consultation document ‘Employment Intermediaries and Tax Relief for Travel and Subsistence’
LITRG report ‘Travel expenses for the low-paid – time for a rethink?’