Travel relief schemes “work against low-paid temps”

So-called pay-day-by-pay-day (PDPD) provisions continue to be used by low-paid agency workers to obtain tax relief for travel costs, despite HMRC deeming such schemes non-compliant, according to the Low Income Tax Reform Group (LITRG).

A new report from the charity explains that controversial PDPD umbrella arrangements have flourished in part because current legislation does not provide travel expense relief to temporary workers, even though they “may be doing the same work as those with a continuing employment who may claim the relief”.

LITRG chairman Anthony Thomas said, “With little in the way of ‘consumer protection’ guidance for workers, the schemes are well in use. Yet, when the tax ‘savings’ sold to them by promoters are reversed by HMRC’s automated P800 calculation process, workers can find themselves worse off than had they not joined the scheme at all.”

Umbrella arrangements provide a framework to convert an agency worker’s successive short-term posts into temporary workplaces under a single contract of employment.

PDPD schemes see the employer applying relief each pay day to travel expenses incurred by the employee, with the effect that only the balance of pay is subjected to income tax and National Insurance (NI). The umbrella employer also benefits from paying reduced class 1 secondary NI contributions, and usually deducts a fee from workers’ pay packets for operating the scheme.

The Revenue stated in 2011 that it intended to identify businesses operating PDPD relief models, but LITRG’s research indicates that nothing has been done by the department, and up to 37% of firms offering umbrella schemes could still be taking on workers under PDPD-style arrangements.

Anthony Thomas urged the authorities to look at why workers agree to the schemes in the first place, suggesting that one factor is “most certainly the gaps in the underlying tax and NI rules on travel expenses”.

Categories: News , PDPD , Avoidance , Employees , Income Tax