The Low Incomes Tax Reform Group, formed in 1998, has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes. LITRG works extensively with HM Revenue & Customs (HMRC), other Government departments, commenting on proposals and putting forward their own ideas for improving the system. Their most recent publication is a research report into the use of particular umbrella arrangements, by low-paid agency workers, which have been declared ‘non-compliant’ by HMRC but are still widely in use. http://www.litrg.org.uk/reports/2014/141117-LITRG-PAYE-report.
Lisa Keeble, co-founder of All Umbrella Companies Are Equal (AUCAE) has been in discussion with Meredith McCammond, who compiled the report, and was pleased to be able to offer help and advice on umbrella company processes and procedures. Keeble commented: “This report into the umbrella industry is one of the most well-balanced that I have ever seen. The authors recognise that many of the problems within the sector have arisen from a ‘seeming reluctance by HMRC to engage with responsible umbrella companies in reaching consensus on a compliant model’.
Establishing a blue print for a compliant umbrella model is one of the reasons that AUCAE was set up so I was delighted to work with Meredith on this report and look forward to continuing the relationship to ensure that our joint aims are achieved” Much of the LITRG report focuses on the ‘Pay Day By Pay Day’ model which has been used extensively by workers earning minimum wage or just slightly above. A proportion of the workers earnings will be ‘sacrificed’ to be processed as expenses, thereby offering tax relief which will then reduce their tax burden. However, as the umbrella company will retain a margin from the contract value and is legally obliged to pay Employer’s NIC to HMRC the workers’ earnings will invariably be pushed below the minimum wage threshold and their tax and NI contributions will be negligible or even zero.
This model has been challenged by HMRC and workers have subsequently received demands for underpaid taxes. LITRG feel that HMRC should cease this practice and should, instead, issue Regulation 80 demands against the scheme providers. Keeble feels that a policy of targeting providers of non-compliant schemes and those that recommend them rather than those that use them, who may often be completely uneducated about tax matters or may not even have English as their first language, is likely to be far more effective in reducing abuse.