A group of MPs stepped up pressure on the government today to crack down on the travel and subsistence expense schemes being imposed on temporary workers by some recruitment agencies in order to cut their tax bill.
To this end, the five, who were led by Labour MP Michael Connarty, introduced an Early Day Motion calling for action in the Chancellor’s 5 December Autumn Statement.
Early Day Motion 764 petitioned the government to “investigate systematically and in depth all companies known to be using these schemes, to grant HM Revenue & Customs
the power and resources to enforce current legislation and to commit to amending legislation to ensure travel and subsistence tax avoidance schemes are not used in future”.
The schemes, which enable tax avoidance, not only exploit low paid workers, but HMRC also expects them to cost taxpayers an estimated £650 million in the 2012/13 financial year. The schemes work by recruiters blocking out a certain chunk of their temps’ weekly wages as expenses.
The agencies subsequently claim tax relief on those expenses and take up to 88% of the money as profits rather than keep the 30% to which they are entitled and give the rest back to the worker concerned.
“The legislation does exist to clamp down on these illegitimate practices and the FCSA urges HMRC to show its teeth and exercise it now,” he said. “If it doesn’t, we risk new knee-jerk, one-size-fits-all legislation being imposed upon the flexible workforce, which is a highly diverse group and, therefore, cannot be governed by blanket legislation.”
For example, if all tax-free expenses were removed in order to crack down on salary sacrifice schemes, some freelancers who claimed legitimate expenses would be penalised. “Put simply, blanket legislation might protect one group, whilst stifling another,” Davis warned.