HMRC to target umbrellas? ..and agencies?
UKTECH's resident expert on travel expenses, former HMRC inspector, Bob Jones, looks at what could be round the corner for umbrella companies and agencies.
Bob Jones writes:
Bob Jones I have read that HMRC are to set up a task force to target umbrellas. I cannot confirm that to be the case but it would not surprise me if they did – if in fact I would go so far as to say that it would surprise me if they didn't. HMRC have made it abundantly clear that they suspect abuse amongst some umbrellas and that they are going to use their existing powers of investigation.
So what can umbrellas expect? I think that, initially, HMRC will target umbrellas which they suspect are abusing the system. I quote from the consultation document - "The Government is particularly concerned at evidence that umbrella companies and employment agencies using overarching employment contracts often abuse the travel expenses rules, by encouraging their workers to claim expenses which were not genuinely incurred or for which no relief is due."
Overarching contracts
Let's analyse this statement. HMRC are "…concerned at evidence that umbrellas and employment agencies using overarching contracts…." First of all I can state as a fact that not all umbrellas/agencies have overarching contracts that would satisfy HMRC. If that is the case then HMRC may, without further examination, take the view that as there is no overarching contract the umbrella/agency must, forthwith, deduct tax from all expense payments made to employees. It is possible that HMRC may backdate this requirement – I, personally, have seen cases where the decision has been backdated and others where the requirement has been simply from the date of the letter. Even if HMRC decide not to backdate, the umbrella will be left in a very difficult situation until it can be rectified.
Now the rest, and more sensitive, of the HMRC quote that umbrellas and employment agencies – "...often abuse the travel expenses rules, by encouraging their workers to claim expenses which were not genuinely incurred or for which no relief is due...".
It is, of course, totally wrong for an employer, whether it be umbrella, agency or any other type of employer to encourage its employees to claim expenses that are not genuinely incurred or for which no relief is due. It follows that there will be a significant loss of tax to the Exchequer and if it can be shown that the umbrella/agency is actively involved in that loss then my guess is that the umbrella/agency will be held responsible. From a practical point of view it is much easier for HMRC to settle with one employer rather than multiple employees.
Compliance
Over the last couple of years I have been consulted by a number of umbrellas whose sole interest is complying with the law. The common denominator is that they are in total agreement with HMRC regarding any umbrella which might come under the category of those which "…often abuse the travel expenses rules, by encouraging their workers to claim expenses which were not genuinely incurred or for which no relief is due…..".
A tightening up by HMRC will be welcomed by those umbrellas that strive to comply. All they ask is for a level playing field where success or failure is dependent upon the level of service/value for money and not what can be offered to contractors in the form of what might turn out to be inappropriate tax free allowances.
Having said all that I believe the problem is partly of HMRC's own making as it would appear that they have been a little lax in their granting of dispensations in the past.
I think that it would be wise for each umbrella to review its own contracts/working practices now. Dispensations are normally reviewed once every five years and if it is true that a dedicated unit is being formed there will be no hiding place with HMRC first targeting those umbrellas that they suspect are being non-compliant and then working their way down the list.
If you would like me to review your contract/dispensation/expense policy, free of charge then (preferably) email details to bob.jones25@btinternet.com or phone 01244 310547/07701052304.
Bob Jones