Redego Umbrella Company » overarching employment contract http://www.redego.co.uk Fast, Efficient & Fully Complient Payroll Service for Contractors Mon, 26 Sep 2011 11:51:59 +0000 http://wordpress.org/?v=2.9.1 en hourly 1 Temporary workers: The application of Tax, National insurance and National minimum wage legislation http://www.redego.co.uk/index.php/2010/03/temporary-workers-the-application-of-tax-national-insurance-and-national-minimum-wage-legislation/ http://www.redego.co.uk/index.php/2010/03/temporary-workers-the-application-of-tax-national-insurance-and-national-minimum-wage-legislation/#comments Thu, 25 Mar 2010 14:08:05 +0000 Redego http://dev.redego.co.uk/?p=290 In the last two years HM Revenue and Customs (HMRC) have seen a growth in arrangements which are variously described as ‘Travel and Subsistence Schemes’ or ‘Mobile Worker Schemes’. These schemes are operated by many businesses involved in the supply of temporary workers to end users: Employment Businesses and umbrella companies.

The labour supply businesses seek to obtain a tax and National Insurance advantage by the creation of a purported overarching employment contract which is intended to enable temporary workers who would not otherwise be entitled to tax relief on travel and subsistence expenses to gain such tax relief.

These schemes often involve the use of salary sacrifice arrangements and rely for their effectiveness on the fact that HMRC have issued a dispensation in accordance with section 65 Income Tax (Earnings and Pensions) Act 2003.
In many cases such schemes are marketed to workers as representing a tax and National Insurance saving for the worker. However, the major saving is not to the worker, rather to the party who would bear the higher employer’s National Insurance contributions costs if it were not for the arrangement.
Following responses to the July 2008 consultation ‘Tax relief for travel expenses: temporary workers and overarching employment contracts’, HMRC commenced compliance activity to identify and take action against those Employment Businesses and umbrella companies which are operating in contravention of tax, National Insurance or national minimum wage legislation.
Current compliance activity has identified a number of concerns that are the subject of more detailed, ongoing investigation. These include:
Potentially ineffective overarching employment contracts
Dispensations which are invalid, or which have been wrongly applied
Not complying with the terms of the dispensation
“Expense payments” made tax-free without that level of expense, or in many cases any expense, having been incurred
Potential illegal deductions from workers’ pay
Ineffective and sometimes unlawful management processes; and
Breaches of national minimum wage
HMRC are working with other Government Departments, including the Department for Business Innovation & Skills, and Authorities, particularly the Gangmasters Licensing Authority, to identify businesses acting in contravention of legislation and will penalise breaches of the law as they are identified. In addition, HMRC are also working with end users of temporary labour to raise their awareness of the consequences of sourcing their temporary workers from businesses which act in contravention of the law.
HMRC are concerned that many lower paid workers being paid through such schemes do not understand the arrangements and in many cases are given little choice as to whether or not they are paid through such schemes. There are also concerns about low paid workers in such schemes opting out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 without fully understanding the implications of what the opt-out means.
End user businesses which use temporary workers paid though Employment Businesses and/or umbrella companies which do not fully comply with their statutory obligations, clearly run a risk of damage to their reputation and their business if HMRC takes action.
HMRC will continue to investigate and challenge non-compliant Employment Businesses and umbrella companies and will report to ministers in due course on the outcome of that action and the extent of issues being discovered. Ministers will then be able to consider the extent to which compliance action is able to address the undesirable effects of these schemes and whether further measures are required.

In the last two years HM Revenue and Customs (HMRC) have seen a growth in arrangements which are variously described as ‘Travel and Subsistence Schemes’ or ‘Mobile Worker Schemes’. These schemes are operated by many businesses involved in the supply of temporary workers to end users: Employment Businesses and umbrella companies. The labour supply businesses seek to obtain a tax and National Insurance advantage by the creation of a purported overarching employment contract which is intended to enable temporary workers who would not otherwise be entitled to tax relief on travel and subsistence expenses to gain such tax relief.

These schemes often involve the use of salary sacrifice arrangements and rely for their effectiveness on the fact that HMRC have issued a dispensation in accordance with section 65 Income Tax (Earnings and Pensions) Act 2003.

In many cases such schemes are marketed to workers as representing a tax and National Insurance saving for the worker. However, the major saving is not to the worker, rather to the party who would bear the higher employer’s National Insurance contributions costs if it were not for the arrangement.

Following responses to the July 2008 consultation ‘Tax relief for travel expenses: temporary workers and overarching employment contracts‘, HMRC commenced compliance activity to identify and take action against those Employment Businesses and umbrella companies which are operating in contravention of tax, National Insurance or national minimum wage legislation.

Current compliance activity has identified a number of concerns that are the subject of more detailed, ongoing investigation. These include:

  • Potentially ineffective overarching employment contracts
  • Dispensations which are invalid, or which have been wrongly applied
  • Not complying with the terms of the dispensation
  • “Expense payments” made tax-free without that level of expense, or in many cases any expense, having been incurred
  • Potential illegal deductions from workers’ pay
  • Ineffective and sometimes unlawful management processes; and
  • Breaches of national minimum wage

HMRC are working with other Government Departments, including the Department for Business Innovation & Skills, and Authorities, particularly the Gangmasters Licensing Authority, to identify businesses acting in contravention of legislation and will penalise breaches of the law as they are identified. In addition, HMRC are also working with end users of temporary labour to raise their awareness of the consequences of sourcing their temporary workers from businesses which act in contravention of the law.

HMRC are concerned that many lower paid workers being paid through such schemes do not understand the arrangements and in many cases are given little choice as to whether or not they are paid through such schemes. There are also concerns about low paid workers in such schemes opting out of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 without fully understanding the implications of what the opt-out means.

End user businesses which use temporary workers paid though Employment Businesses and/or umbrella companies which do not fully comply with their statutory obligations, clearly run a risk of damage to their reputation and their business if HMRC takes action.

HMRC will continue to investigate and challenge non-compliant Employment Businesses and umbrella companies and will report to ministers in due course on the outcome of that action and the extent of issues being discovered. Ministers will then be able to consider the extent to which compliance action is able to address the undesirable effects of these schemes and whether further measures are required.

HMRC

]]> http://www.redego.co.uk/index.php/2010/03/temporary-workers-the-application-of-tax-national-insurance-and-national-minimum-wage-legislation/feed/ 0 10 golden rules to survive a tax investigation http://www.redego.co.uk/index.php/2009/10/10-golden-rules-to-survive-a-tax-investigation/ http://www.redego.co.uk/index.php/2009/10/10-golden-rules-to-survive-a-tax-investigation/#comments Fri, 23 Oct 2009 10:04:46 +0000 Redego http://www.redego.co.uk/?p=793 Taxpayers have good reason to fear investigation by HM Revenue & Customs. Now Daniel Dover, a partner at accountants BDO Stoy Hayward LLP, and financial writer Tim Hindle have written a book – ‘The Taxman Always Rings Twice’ – explaining the process, showing what is at stake and how to get through it. Here are their 10 golden rules:

1. KEEP CALM!
An investigation often provokes a number of violent emotions in those under scrutiny – not least sheer terror at the thought of ending up in jail. In reality, very few cases end in a custodial sentence. So there’s no need to expect the worst.
2. GET EXPERT ADVICE AT THE OUTSET
If you are being investigated by HMRC, it is highly recommended that you seek out independent financial advice from a reputable accountant or adviser who specialises in this field. You will need somebody on your side who understands the jargon and knows how HMRC operates who can take some of the emotional strain from your shoulders. It’s also likely to be cheaper in the long run.
1. KEEP CALM!
An investigation often provokes a number of violent emotions in those under scrutiny – not least sheer terror at the thought of ending up in jail. In reality, very few cases end in a custodial sentence. So there’s no need to expect the worst.
2. GET EXPERT ADVICE AT THE OUTSET
If you are being investigated by HMRC, it is highly recommended that you seek out independent financial advice from a reputable accountant or adviser who specialises in this field. You will need somebody on your side who understands the jargon and knows how HMRC operates who can take some of the emotional strain from your shoulders. It’s also likely to be cheaper in the long run.

3. DON’T DISCUSS YOUR TAX AFFAIRS WITH ANYONE BUT A TIGHT CIRCLE OF TAX ADVISERS
Tempting though it might be to offload your woes at the pub or the golf club, it’s never a good idea – unless you want the whole town to know the details of your case; and that might include a taxman. It’s also almost certain that what your friends advise you will be wrong and therefore detrimental to your chances of reaching a settlement with HMRC.


4. DON’T LIE TO HMRC
This is the simplest and most reliable way of avoiding that jail sentence!


5. DON’T ASSUME HMRC IS IGNORANT OF ANYTHING
An HMRC investigator has a huge number of resources at his disposal and is not afraid to ask questions. As the book says “Stick with the wartime advice: ‘Careless Talk Costs Lives’. Letting a former flatmate know that you paid for your house in the Dordogne in cash is not literally going to kill you. But it may cost you the chance of getting a good deal with the taxman should he begin investigating your affairs.”
6. BE WELL PREPARED FOR ANY MEETINGS
Remember the motto “no one prepares to fail – they fail to prepare”. It is pointless trying to evade the HMRC’s questions with insufficient preparation – the investigator will simply use his statutory powers to force you to give him the answers he seeks and your lack of preparation will be deemed to be “lack of co-operation”.
7. MAKE SIGNIFICANT (BUT RELEVANT) PAYMENTS ON ACCOUNT
HMRC sees this as an important sign of a willingness to co-operate. It may also save you a huge amount in interest, which accrues from the date when the tax should have been paid to the day it is actually paid. On the other hand, overpayment of the outstanding liabilities may lead HMRC to an unrealistic expectation of the amount you owe.
8. DON’T TRY TO DESTROY EVIDENCE
It’s usually unhelpful. If you don’t have the appropriate records, HMRC may assume you are trying to hide something when you are not.
9. NEVER MAKE A PARTIAL DISCLOSURE
Do not suffer from selective amnesia when disclosing information involuntarily – this is particularly distasteful to HMRC and is likely to lead to a more punitive settlement since the HMRC will take into account your lack of co-operation when determining the penalty you have to pay as part of your settlement.
10. ONCE YOU HAVE REACHED A SETTLEMENT, DON’T OFFEND AGAIN
HMRC will view those who offend a second time in a much more serious light.
If you follow these rules you should survive a tax investigation – and may even do so with your sanity intact!
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