HMRC has issued a warning to recruiters, including umbrella companies, against the adoption of a new business model for travel and subsistence.
The ‘pay day by pay day’ model enables employers to apply NI and income tax relief to employees’ incurred expenses each pay day. The effect of this is that tax and National Insurance are only paid on the balance.
However, the Revenue recently said that this model is not compliant with the Social Security Acts or the Taxes Acts. Any employer using the model is not calculating the correct PAYE because Income Tax liabilities are calculated over the course of a year.
HMRC also pointed out that the Social Security (Contributions) Regulations 2001 do not allow for deductions from earnings in situations where an employee pays travelling expenses out of his total income.
In May, the Revenue said it was looking into a different business model whereby the employer could pay travel and subsistence claims to their employees in cash and the employees then pay a voluntary ‘financial advice payment’ back to the employer.
Following HMRC’s announcement, Saffery Champness, a firm of accountants, warned that employment businesses using the model could find themselves coming under increased scrutiny.
A spokesman for the company said it would be interesting to see how the Revenue handles this, but any business operating the ‘pay day by pay day’ model should expect to find themselves under greater scrutiny and possibly even investigation.
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Image: Warning by basibanget
