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HMRC continues to investigate umbrella companies over expenses dispensations

Published on Aug 7, 2009 |

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HMRC continues to investigate umbrella companies and other businesses who may be breaking the law in the way they reimburse travel and subsistence expenses to their 'workers'.

Initial consultation

In July 2008, the Treasury published a paper, "Tax Relief for Travel Expenses:temporary workers and overarching employment contracts", to herald the start of a consultation process looking at how temporary workers were "reimbursed" travel and subsistence expenses.

The Government wanted to clamp down on businesses who "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 tax relief."

Following responses to the paper, HMRC started to identify any employment businesses and umbrella companies which, in its view, were running businesses which contravened tax, NI and minimum wage legislation.

Areas of continuing concern to HMRC

According to HMRC brief 50/09 which was published this week, the following areas are currently being investigated further:

- Potentially ineffective overarching employment contracts.
- Dispensations which are invalid, or which 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.

More information

- You can read the original 2008 consultation document here.

- You can find out more on the HMRC site.

- Read our popular article discussing umbrella companies and expenses dispensations.