The following details with regards to National Minimum Wage Regulations have come to our attention recently. So we decided that maybe publishing the details we have found may help contractors keep an eye on anything on their wage slips that could be out of the ordinary.
The weekly payslip, we were sent detailed the following:
Payments Basic Pay: £228.00
PAYE Tax: £43.00
National Insurance: £26.46
NI Adjustment & Fee: £175.18
This Period Total Gross Pay: £1,012.50
Gross for Tax: £359.04
Earning for NI: £359.00
Payment Period: Weekly
The facts we know: The nurse knows for a fact that the nursing agency paid her umbrella company £15,543 gross for her services during the time she was working for them. However, the P45 subsequently showed £3,646.17 and tax paid of £422!!
Under Investigation by HMRC
So let’s take a look at why this could leave you, the contractor, under investigation by HMRC?
Well what is described is yet one more example of an Umbrella Company putting itself and its employees at risk of an HMRC investigation because what is shown is a breach of the National Minimum Wage legislation. But what is more worrying and would potentially set the HMRC antenna twitching would be the excessive £653.46 expenses. These are unlikely to be receipted and/or incurred wholly, exclusively and necessarily in the performance of the work.
We are aware that some Umbrella Companies have been paying their employees a salary below minimum wage and then making up the difference with travel and/or subsistence expenses. The processed expenses would reduce the amount of tax and NI payable which would mean that the employee would see nothing unusual about their take home pay. Unfortunately it was not uncommon for unscrupulous Umbrella Companies to process expenses for costs which had not actually be incurred which would then also put the employee at risk of future tax liabilities.
National Minimum Wage
HMRC issued regulations concerning the National Minimum Wage, which came into force from January 2011. They have determined that Benefits in Kind do not count towards National Minimum Wage Pay. This means that Umbrella Companies are no longer able to include them in their calculations. The Benefits in Kind include meals, fuel, medical insurance; luncheon vouchers and child care vouchers.
HMRC has also announced a stark warning on this subject stating; that they are “aware of ‘schemes’ that Umbrella Companies are using to avoid paying National Minimum Wage” and have stated quite clearly that they view them as unlawful and will take action accordingly.
These schemes include:
Paying subsistence expenses (usually in the form of a daily allowance)
instead of travel expenses
Classifying workers as Directors
Adjustments under recording hours worked
If any of these ‘tax saving’ schemes are offered to you, we suggest that you decline politely or become at risk of future tax liabilities.