The Gangmasters Licensing Authority (GLA) has slammed the door shut on a loophole which had seen tax cheats cost the government around £0.5bn.
Following 12-week warning period, which ended on Wednesday, the GLA is clamping down on gangmasters and umbrella companies who abuse tax-free allowances for workers as a method of undercutting rivals and where these businesses breach licensing standards, their licences will be revoked.
The schemes, often known as travel schemes, travel and subsistence schemes or mobile worker schemes were initially set up to benefit self-employed contractors but they have now become prevalent, with labour providers making it compulsory for their minimum wage workers.
The legitimacy of the scheme depends on whether the expenses paid by the employer have genuinely been incurred by the worker, and whether it may then have breached the national minimum wage.
The GLA has now issued guidance that expenses paid to workers do not count towards wages; compulsory ‘administration fees’ levied on workers in relation to travel schemes are non-compliant in the absence of the provision of additional services; and labour providers are required to provide evidence that tax-free expenses have actually been incurred by workers.
The GLA has recently seen cases where minimum wage workers have well over 50 per cent of their pay attributed to expenses, leaving their actual salary and the taxable amount as low as £97 for a 38-hour week.
Andy Hogarth, chief executive of Staffline, told freshinfo: “We came across this in 2008 when we began to investigate how our competitors were vastly undercutting us.
“In effect, both the temporary workers and the agencies’ clients are being ripped off as they should be seeing the benefit if they are going to use the scheme. The workers are marginally better off in terms of money but received none of the National Insurance benefits.
“Some of our clients have said, as it had not been shut down by the GLA and HMRC before now, that they wanted us to start doing it as they are under huge pressure from the retailers at this time, but have said we think it is illegal, and we have lost business as a result.”
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