A judge’s backing for a Gangmasters Licensing Authority (GLA) decision to refuse contractor and agency solutions provider FS Commercial (FSC) a licence has “enormous significance” for the use of travel & subsistence schemes in the recruitment industry, says Andy Hogarth, chairman and chief executive of staffing provider Staffline Group.  

Hogarth tells Recruiter: “I don’t know for certain, but I expect that schemes that take workers below the national minimum wage will be completely outlawed.

“The whole tax avoidance issue is going up the public agenda. There is no public sympathy for these types of schemes that involve the abuse of workers, and this makes it more likely that the government will crack down on these type of schemes.”  

Under ‘pay day by pay day’ schemes, employers pay workers travel & subsistence expenses in place of their salary every pay day. By applying income tax and National Insurance (NI) contributions relief to the amount of expenses that an employee has incurred, the employers saves themselves considerable amounts in NI contributions and tax. And in some cases, these schemes take the worker’s pay below the minimum wage. 

Hogarth’s comments come after a decision made last week by a judge at the Independent Appeals Tribunal, who backed the GLA’s decision to refuse umbrella firm FS Commercial a licence, and dismissed FSC’s appeals.

FSC applied for a GLA licence in September 2010, with a proposal to operate a ‘pay day by pay day’ tax relief model.  

However, in January 2011 the GLA refused to grant the company a licence. A further application was made for a licence in June 2012.

In her decision Judge Porter described the GLA’s decision to refuse FSC a licence as “reasonable and appropriate”. 

And she held that the scheme devised by FSC went against the purpose of the National Minimum Wage regulations, going on to describe the proposed fee to be deducted from workers’ take-home pay as “merely another way of making the low-paid workers pay for FSC’s payroll function”.

The judge criticised Alan Nolan, senior partner at Aspire Business Partnership, who gave evidence supporting FSC’s appeal, describing his evidence as “evasive” and declaring that he had “clearly sought to avoid telling the truth”.

Recruiter contacted FSC, who said they were preparing a statement, but as Recruiter.co.uk went to press this was not available.  

In a company statement, Nolan says: “We believe that being able to off-set business-related expenses incurred in travelling to a temporary workplace on an earnings period basis and to receive the correct amount of tax credit based on the correct level of earnings should be the right of every worker irrespective of the levels of pay and choice of employer. 

“Aspire Business Partnership has significant experience in advising clients on compliance matters relating to UK employment tax legislation and we stand by the explanations given at the tribunal hearing, which has been acknowledged as an inappropriate jurisdiction to consider such complex arguments surrounding the PAYE social security and National Minimum Wage regulations.

“We understand that this matter will be the subject of an appeal and application for judicial review.”

In August, HMRC issued a statement that: “Expenses that are not made to or provided for any employee by the employer [using a pay day by pay day tax relief model] cannot be included in, or afforded the protection of a dispensation [which allows them to claim tax and NI relief on workers’ expenses].”