New Legislation for Expenses via Umbrella

Dear Experts

Can anyone help me with an issue arising with my current umbrella company payroll provider. We have been sent new registration packs to re-register with our "payroll" provider as changes to their structure because of new legislation for Jan 2011 means that the beenfits I have been achieving over the last 9 months are coming to an end and the take home pay I have recieved will be affected significantly due to this "legislation change"

Can anyone explain to me WHAT this legislative change is and why is affecting my take home pay by so much? Has anyone else experienced this?

Please help me understand.

Anne

------

Dear Anne

I spent 39 years in the employment of HMRC and have been self employed for the last four - much of my time is now spent advising Umbrellas on what is or isn't allowable/permanent and temporary workplaces/dispensations/audit requiremen ts etc.

I know of no change in legislation and even if there were it would come into effect as from 6 April and not 1 January.

Bob Jones

Independent Expenses Expert

---

Hi Anne,

The National Minimum Wage legislation was amended and came into effect in January 2011, in very simple terms (without wandering into tax speak) the amended legislation closed a "loop-hole" between the Expenses legislation (s336-338 ITEPA 2003) and the National Minimum Wage legislation.

When dealing with low paid workers who only received on or around national minimum wage level there were some umbrella companies who were taking the gross income received, offsetting expenses and paying out the rest as taxable pay to the individual. These umbrella companies were saying effectively (as national minimum wage is the lowest possible amount per hour an employee/worker can be paid) that the reimbursed expenses made up part of the national minimum wage element.

The amended legislation closed this loop-hole being exploited by a few umbrella companies and confirmed expenses claimable under s338 (travel expenses) cannot be used to make up part of national minimum wage - ie an individual must receive at least NMW £5.93 taxable pay for every hour worked.

What these means for low paid umbrella employees is that they may not now be able to reclaim expenses from their umbrella company (as the umbrella company hasn't received enough money to pay out national minimum wage, plus holiday pay and expenses on top) so the individual is seemingly worse off and being taxed on the full £5.93 where before he may have been allowed to offset tax free expenses.

In these cases, while the umbrella cannot reimburse the expenses, what the individual can do is ask HMRC at the end of the tax year for tax relief for unpaid expenses. The individual must keep all receipts of expenditure and logs of mileage and reason for travel in order to make a claim.

David Harmer

Director, MarbleCC