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UK – Controversial tax relief scheme suspended

19 April 2013

Payroll firm Legitas this week said it would suspend a controversial scheme which allowed the company to claim tax relief on behalf of 20,000 agency workers. After coming under pressure from HM Revenue and Customs (HMRC), the firm will now process payments of temporary workers through Pay As You Earn (PAYE).

Legitas’ Employ E scheme, previously called Legal E, has run an outsourced payroll service which enabled 20,000 temporaries to claim tax relief on travel and food costs every week.

Employ E functions as a management service for recruitment agencies whose workers fall under AWR regulations. It targets low-paid temporary workers who work at or around the national minimum wage. The scheme allowed workers to maximise their earnings by offsetting supposedly legitimate expenses against their gross pay.

Legitas has now written to its clients to inform them of the change in processing payments. A statement from the company says the firm is currently working with HMRC to set and implement a real time model for the processing of temporary worker payments. But HMRC said it did not help develop business models.

HMRC had previously criticised such pay-day-by-day tax relief models, saying they did not comply with the law. However, Legitas denied any wrongdoing.

“Whilst no legal issues have been found with our current model, we are keen to lead the market in employing a more efficient and comprehensive system and have taken guidance from HMRC in doing this. In the meantime, in order to best protect both our clients’ interests and those of the worker, we have decided to process all temporary employees’ payroll on a PAYE basis for a short period of time, with immediate effect,” a statement read.

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