Employment businesses can expect increased HMRC scrutiny
Under the ‘pay day by pay day’ tax relief model, an employer applies income tax and National Insurance relief to the amount of expenses, which an employee has incurred, with the relief applied each pay day. The effect is that only the balance is subjected to income tax and National Insurance.
However, last week HMRC said the model does not comply with the Taxes Acts or Social Security Acts and associated regulations.
A spokesperson for Saffery Champness, advisers to TEAM (The Employment Agencies Movement), told Recruiter: “It will be interesting to see what action they will take next, but any business involved in using or promoting the pay day by pay day model can expect to experience increased scrutiny and possibly investigation from HMRC and our advice would be for them to seek professional advice at an early stage.”
In an explanation on its website issued last week, HMRC said that an employer operating such a model is not accounting for the correct Income Tax (PAYE) due to HMRC because Income Tax is an annual tax. HMRC added that the Social Security (Contributions) Regulations 2001 do not provide for a deduction from the amount of that employees earnings, where the employee meets the travelling expenses out of total income/earnings.
Liz Longman, TEAM managing director, told Recruiter: “TEAM members generally welcome HMRC’s statement as a positive step to help level the playing field in the sector.”
In May, HMRC said it was looking into another business model in which the employer pays travel and subsistence claims in cash to employees, who then make a voluntary ’financial advice payment’ to the employer.
