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HMRC has been urged to clampdown on organisations that wrongfully force people to use personal service companies to obtain work.
The call was made by the Low Incomes Tax Reform Group (LITRG), which wants the government to be prolific with information about whether or not conditions imposed by agencies and employers on taxpayers are legitimate.
The LITRG, the charitable arm of the Chartered Institute of Taxation, said it was concerned that workers themselves risk being challenged by the Revenue if they are required to work on terms that enable employers to avoid tax.
Many low and moderately paid individuals, including supply teachers, cleaners and subcontractors “are being forced to use limited companies to obtain work when they would be better off being employed either by the agency or the client and indeed probably should be employed”, warned LITRG chairman Anthony Thomas.
He cited a common scenario in which a person signed up with an employment agency is told his or her services must be provided through a limited company or umbrella company.
The worker may not understand the implications and costs, and believe her or she is being taken on as an employee of the agency, said Mr Thomas.
An area in which problems frequently arise is employment expenses: umbrella companies, for example, deduct a fixed amount from the worker’s gross pay for business travel or subsistence expenses, even when none have been incurred.
The LITRG is aware of many cases in which a taxpayer has been left with a significant tax bill at the end of the year, while the umbrella company has avoided accounting for employer National Insurance on the correct amount of pay.
It is not uncommon for the company to disappear, leading HMRC’s to pursue the individual taxpayers for unpaid levies.
