The Gangmasters Licensing Authority (GLA) has announced that it is to clamp down on gangmasters and ‘umbrella companies’ who abuse tax free allowances for workers as a method of undercutting rivals.

The GLA says that firms that breach these licensing standards will have their licences revoked.

Gangmasters now have 12 weeks to comply before enforcement action begins. Should labour providers and umbrella companies fail to heed this warning, the GLA will take action from 17 February 2010.

Also where non-compliance is proven, alongside GLA action, HM Revenue & Customs (HMRC) will seek arrears of tax, national insurance and national minimum wage, with penalties and interest sought where appropriate.

Paul Whitehouse (pictured), chairman of the GLA, says: “We have issued clear guidance, and the industry has been given 12 weeks to ensure they comply. There are no excuses and we will come down hard on anyone who is operating illegal schemes from 17 February.”  

The schemes, often referred to as travel schemes, travel and subsistence schemes or mobile worker schemes, were initially set up to benefit self-employed contractors but these schemes are now prevalent among labour providers, making it compulsory for their minimum wage workers.

The scheme’s legitimacy is dependent on whether expenses paid by the employer have genuinely been incurred by the worker, and whether it may then breach the national minimum wage.

The GLA says it has come across recent cases where 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 38hr week.

The GLA has also expressed concerns over more companies within the industry using these schemes to benefit themselves, allowing them to offer reduced rates to customers undercutting those not using these schemes.

The GLA adds that although workers could receive more take home pay if they had not actually incurred the expenses in the first place, reductions in national insurance payments could impact their contributory tax benefits, such as pensions and job seekers allowance.