It appears that some umbrella companies have been paying their workers at rates that fall below the National Minimum Wage (NMW), but topping their income up through expenses schemes. HMRC has taken a dim view of this practise and has just issued a warning that it plans to identify all businesses that seek to “circumvent the NMW.” The department goes on to warn that “appropriate action” will be taken.
In a nutshell, when expenses are used in this way, the schemes are “contrary to the will of Parliament,” according to HMRC. The department will be targeting umbrella business models that pay subsistence expenses rather than bone-fide travel expenses, but other practises will also be penalised. These include the under-recording of hours worked, falsely designating workers as directors and making “holiday pay adjustments.”
Employment businesses and umbrella companies that fail to comply with HMRC guidelines on NMW will also come under scrutiny for tax compliance. Any non-compliance identified in this area could result in the revocation of company dispensation as well as the repayment of arrears of tax and National Insurance with interest, and quite possibly penalties as well.
Contractors who suspect that their umbrella company is operating schemes such as these are best advised to switch to a compliant PAYE umbrella service (such as, for instance, Crystal Umbrella) without delay. A gimlet-eyed tax inspector could well be about to pay a visit very shortly to those businesses which fail to comply with HMRC’s tax and NMW requirements.