From today, gangmasters and umbrellas companies who abuse tax free allowance travel schemes will have their licences revoked if they breach guidance issued by the Gangmasters Licencing Authority (GLA).

In November 2008, the GLA warned that gangmasters and umbrella companies had 12 weeks to comply or face enforcement action.

Paul Whitehouse, chairman of the GLA,  told Recruiter: “We’ve issued clear guidance to the industry on travel schemes and umbrella companies and they had 12 weeks to make sure their schemes complied with the GLA licensing standards.”

“From now on we will be examining all such schemes carefully and firms that are running non-compliant schemes may find their licenses revoked.”

The clampdown relates to ‘travel schemes’ (also known as  travel and subsistence schemes, or mobile worker schemes), where these are operated by labour providers, or where labour providers refer their workers to umbrella companies to operate such a scheme.

Under these schemes, workers generally sacrifice income before tax in respect of travel and subsistence, and in return receive tax free travel and subsistence from their employer under a dispensation issued by HM Revenue and Customs.

“The legitimacy of the scheme depends on whether the expenses paid by the employer have been genuinely been incurred by the worker, and whether they have breached the national minimum wage,” said the GLA

The guidelines that come into force today cover the following:

- Minimum wage

All workers must be paid at least the national minimum wage. Under some travel schemes, expenses payments would not count towards the minimum wage. Where these expenses payments are calculated in such as way that they do count towards the minimum wage, the licence holder would be in breach of this licensing standard

Where a worker is forced to pay an administration fee to an employer for calculating and arranging pay for their participation in a travel scheme, the GLA will revoke the licence holder of the licence holder.

- Tax/National Insurance

Licence holders can legally reduce the amount of tax and National Insurance through the use of travel schemes.

However, this is only permissible if they can show evidence that the expenses have actually been incurred by the workers to whom tax-free expenses are paid.

Licence holders who cannot show evidence of this will have their licence revoked, as will licence holders who do not apply their HMRC dispensation correctly.

The GLA clampdown follows evidence uncovered by the authority that some minimum wage workers have well over 50% of their pay attributed to expenses, leaving their actual salary and the taxable amount as low as £97 for a 38-hour weeks.

The GLA is concerned that some companies are using these schemes to benefit themselves, and allowing them to undercut competitors not using these schemes.

Companies who abuse these schemes will also face action from HMRC action to recover arrears of tax and national minimum wage, with penalties and interest also imposed where appropriate.

Andy Hogarth, chairman and chief executive of Staffline, says he welcomes the GLA’s tougher stance, “which further highlights the misuse of salary sacrifice schemes to undercut those not using the schemes and is an encouraging step towards ensuring workers receive the wages and benefits that they are due”.