HM Revenue and Customs (HMRC) has warned recruiters and umbrella companies involved in the supply of temporary workers that arrangements known as “Travel and Subsistence Schemes” or “Mobile Workers Schemes” are coming under scrutiny because of concerns that some are operating against the law.

In a briefing note issued last week, HMRC says it has identified “a number of concerns” which are the focus of “more detailed, ongoing investigation”. They include:

- Potentially ineffective overarching employment contracts

- Dispensations which are invalid, or 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.

Responding to the news, the Gangmasters Licensing Authority told RecruiterTuesday that they “welcome any clarification on this issue, as the way some of these schemes have been implemented are a current concern for us. Technically anything that takes workers’ pay below minimum wage could lead to a licence revocation amd some umbrella companies depending how they have implemented the scheme could need to be licensed. The GLA will be investigating and challenging non-compliant businesses and/or umbrella companies who are abusing these schemes in our sectors”.

The HMRC briefing note also says, 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 as 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 Natioanal Insurance contributions costs if it were not for the arrangement.”

HMRC is working with the Gangmasters Licensing Authority, and other government departments, to identify businesses that are operating outside the law. There is also a warning to end user businesses which use law-breaking employment firms or umbrella companies that they “clearly run a risk of damage to their reputation and their business if HMRC takes action”.