Controversy over expenses payments to temporary workers has erupted again over a ’new business model’ that critics said was being used by recruiters to reduce income tax for workers and National Insurance payments for both worker and employer.

Under this latest scheme, the employer pays travel and subsistence (T&S) claims in cash to employees. The employee then pays a voluntary ’financial advice payment’ to the employer.

The new scheme follows amendments to the National Minimum Wage Regulations from 1 January this year to prevent tax-free T&S expenses from counting toward national minimum wage pay. Critics of such schemes claim that they give unfair financial advantage to operators.
Andy Hogarth, chief executive of industrial recruiter Staffline Group and a longtime critic of T&S schemes, told Recruiter he learned of the scheme from customers: “Whether or not it actually breaks the law, I’m not so sure. But certainly the spirit is not being followed.

“We thought that come 1 January, everybody would be back to a level playing field and that everybody would be trying to compete more on service and efficiency rather than running a scheme,” he said.

Tax authorities have been looking into the “new business model”, a spokesman for Her Majesty’s Revenue & Customs (HMRC) confirmed to Recruiter.

“HMRC has been asked by a number of bodies to comment on whether this new model complies with tax and social security legislation,” the spokesman said. “HMRC is currently drafting guidance clarifying the application of the rules relating to expenditure incurred by employees, and will be publishing it shortly.”