The LITRG is urging workers to consider their relationship with umbrella companies carefully, especially as a key advantage of using such companies has now been shut.
New rules from 6 April 2016 prevent workers engaged through an employment intermediary, such as agency workers working through an umbrella company, from benefiting from tax and National Insurance contribution (NIC) relief for home to work travel expenses.
But umbrella companies continue to exist in part because many agencies are unwilling to deal with taxes and day-to-day staffing issues, preferring to delegate such matters to umbrella companies. To try and attract workers they may be ‘selling’ the other, non-travel-expense related benefits they can provide over agency PAYE. An example may be marketing ‘employee’ rather than ‘agency worker’ employment rights and the ability to provide a continuous payroll link from one assignment to the next.
LITRG is concerned about the potential for agency workers to be confused by the various marketing claims, and it has produced a guide for the workers so they can analyse some of the key tax-related points they may be hearing.
Anthony Thomas, Chairman of LITRG, said:
“If you are thinking of paying a fee to an umbrella company, it is important to understand what you are getting for your money – you should not just accept things you are told about still being able to claim for expenses other than those related to home to work travel for example, without trying to understand for yourself how worthwhile this really is to you.
‘’The general expenses rules, which apply equally to those under agency PAYE as to those working for an umbrella company, are very tightly drawn, meaning there may be few expenses for the umbrella company to process. [The general test is that the expenses must be ‘wholly, exclusively, and necessarily’ incurred in the performance of the employment.] In addition, even if you do have some expenses that qualify for tax relief, the umbrella company should probably not be giving you tax relief there and then as part of your weekly/monthly payroll. Instead you will need to claim tax relief at the end of the year – assuming that your potentially fluctuating earnings over the course of the year mean you pay enough tax to do so [the personal allowance is £11,000 in the 2016/17 tax year – below this you will not pay any tax, and therefore cannot claim any tax relief] – which is actually just the standard position for workers across the board.
‘’It may be that your circumstances mean that you are still attracted to umbrella PAYE over agency PAYE and this is fine. Our message is simply to weigh up all the issues before making that decision and hopefully our guidance will help you do this.’’