UK Treasury To Clamp Down On Travel Tax Loopholes

by Robin Pilgrim, LawAndTax-News.com, London

11 August 2008

HM Treasury recently released a consultation paper which focuses on closing tax 'loopholes' for employment agencies after discovering ‘widespread abuse’ - at a cost of up to GBP300mn - of travel expense tax concessions for some temporary workers.

Non-genuine expenses being claimed by 'umbrella' intermediaries on behalf of workers have reportedly ranged from GBP5,000 up to GBP20,000, and according to an FT report, quoted by Accountacy Age, when HM Revenue and Customs attempt to collect the tax owed, umbrella companies often stop operating, and move their workers to a new company.

According to the Treasury:

"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."

"When HM Revenue and Customs (HMRC) attempts to claim the tax owed, they may encounter difficulties in recovering the underpaid tax and national insurance contributions (NICs). Umbrella companies, in particular, have few assets and can wind up and move their workers to a new company without paying the tax and NICs due."

"This failure to comply with the rules leads to losses to the Exchequer and puts compliant businesses at a competitive disadvantage, The Government wishes to consider action to improve levels of compliance."

"In this area, as with others where there is evidence of significant non-compliance, action will be taken to address this."

The paper then went on to state:

"Beyond this, the Government is also concerned to maintain the principle of fairness in the tax system."

"The current rules mean that the use of overarching contracts allows some temporary workers to obtain tax relief for travel between home and the workplace. It was not the original intention that relief should be given for such journeys and it is unfair that some get tax relief when others working in similar circumstances do not."

"The Government wishes to consider whether there is a case for continuing to give relief in this way through these sorts of arrangements. In other words, it wishes to weigh up whether or not there are advantages for business and the flexible labour market that outweigh the unfairness and, if not, how to tackle the unfairness."

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