Low paid workers caught in travel tax relief schemes

The Low Incomes Tax Reform Group (LITRG) is calling for a debate about how best low paid agency workers can claim tax relief for travel expenses incurred during temporary assignments at different locations, saying that current arrangements are driving them to use non-compliant umbrella schemes which risk creating future tax liabilities.

In a new report outlining the key issues, LITRG says: ‘Whilst the travel expense rules as they stand recognise the “extra” costs of an international assignee on secondment to a “temporary workplace” in the UK (and thus permit him to claim tax relief on a wide range of costs including rent, utility bills and food for up to 24 months) they deny any travel expense relief to, often, low-paid “temps”.’

As a result, LITRG says many such workers use Pay Day by Pay Day (PDPD) umbrella schemes which are designed to convert a series of short-term agency posts into temporary workplaces under a single contract of employment, so that travel expenses are allowable.

In some cases, PDPD operators apply income tax and national insurance contributions (NIC) to the workers’ net (after-expenses) income. This essentially results in unreimbursed travel expense relief being administered at source by the employer, supposedly assessed by reference to the employee’s actual expenses each pay period.   

Although HMRC declared such relief-at-source schemes to be ‘non- compliant’ in 2011, LITRG’s research indicates that HMRC has not taken any PDPD operators to task so far, and the group estimates up to 37% of those offering umbrella schemes could still be taking on workers under PDPD-style arrangements.

Anthony Thomas, LITRG chairman, said: ‘HMRC have neglected to properly address the PDPD phenomenon. In the void, and with little in the way of consumer protection guidance for the workers, the schemes are well in use. Yet when the tax “savings” sold to them by scheme promoters are reversed by HMRC’s automated P800 calculation process, workers can find themselves worse off than had they not joined the scheme at all.’  

‘The workers may be just out of school – perhaps even encouraged into agency work by the JobCentre; they may be adults with lower levels of education, or migrants without good English. Whatever their circumstances, they generally all have one thing in common – they are clueless as to what they are signing up to in the first place; and then even more so when later approached by HMRC for underpaid tax.’

LITRG argues that the introduction of Real Time Information (RTI) means it should be quick and easy for HMRC’s employer compliance function to identify the PDPD employers, and says HMRC should use this information to build a case against a PDPD provider, so that the various arguments for and against the model can be tested once and for all, in order to achieve a definitive ruling.  

The Office of Tax Simplification has also looked at the issue of unreimbursed expenses, which also form part of HMRC’s ongoing travel and subsistence review.     

Thomas said: ‘In our view, the time has come for the authorities to not only tackle the immediate, unsatisfactory situation regarding PDPD, but also to take a holistic look at what is driving workers to use these schemes in the first place.  One of these factors is most certainly the gaps in the underlying tax and national insurance rules on travel expenses.

'Another is workers’ fear of sanctions and loss of benefits if they refuse work, even if it is offered on terms they do not understand. This means that a joined-up approach is needed across government.’ 

LITRG’s report, Travel expenses for the low-paid – time for a rethink, is here

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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