HM Revenue & Customs have recently advised that they have commenced compliance activity to identify and take action against Employment Businesses and Umbrella Companies who are abusing tax concessions for temporary workers.

Following concerns that these rules are being used unjustly and illegally, HMRC has published a business brief on the way that tax, National Insurance and the minimum wage rules apply to temporary workers.

It appears that travel and subsistence schemes remain one of the main concerns. Under the schemes, temporary workers can claim tax relief on travel and subsistence that they otherwise would not be entitled to. However, HMRC suspect that some employment agencies may be deliberately misapplying the rules. The above mentioned HMRC brief goes into this in more detail.

HMRC have advised that while workers may benefit from some saving in tax and NI contributions, “the major saving is not to the worker, rather to the party who would bear the higher employer’s NI contributions costs if it were not for the arrangement”.

A spokesman added: “HMRC is concerned that many lower-paid workers being paid through such schemes do not understand the arrangement and in many cases are given little choice about being paid through such schemes.”

HMRC warned that it will investigate and challenge employment businesses and umbrella companies which do not fully comply with their statutory obligations.