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UK - Temporary worker tax relief scheme criticized

10 February 2012

The Daily Mirror has criticized payroll firm, the Legitas Group for allowing temporary agencies to exploit temporary workers through a ‘non-compliant’ tax relief scheme.

Legitas’ Employ E scheme (previously called Legal E) is an outsourced payroll service which enables 20,000 temporaries to claim tax relief on travel and food costs every week through a scheme called Legal E. Legitas describe Employ E as a management service for recruitment agencies whose workers fall under AWR regulation designed to offer temporary workers, who work at or around the national minimum wage, a way of maximising their earnings by offsetting legitimate expenses against their gross pay”.

Depending on how much the temporary worker earns, take home pay can increased from £2 to £30 per week. At the same time as potentially improving the temporary workers’ net pay, the scheme also benefits the temporary agencies themselves as they can make savings on employers’ national insurance and holiday pay contributions. But it is how this benefit is apportioned that is criticized by The Daily Mirror which alleges that the low-paid temporary workers typically get just 11% of the benefit leaving the lion's share to be split between Legitas and its ­temporary agency clients. Legitas’ clients include temporary agencies HR Go, Jark and Gap Personnel.

Legitas claim to rigorously check actual expenses incurred which differs from the policy employed by Reed (who recently lost a court case on this issue) in which allowances given did not represent the reimbursement of expenses but were simply part of the employed temporary worker’s salary.

The legality of the Employ E scheme was, however, called into question following an HMRC announcement in July 2011 that ‘Pay Day by Pay Day Tax Relief Models' do not "comply" with the law. Legitas point out that this is merely an opinion by HMRC and not a definitive statement of law or legislation. They also claim that the HMRC opinion is ill-conceived and imprecise, and that Legitas’ business model and the way they treat expenses is both robust and supported by leading counsels opinion.

One issue that is clear under the law is that such expenses cannot be allowed to comprise part of the temporary worker’s minimum pay. At the beginning of 2011, the Cordant Group lost a High Court case preventing the use of tax-free travel and subsistence expenses from counting towards national minimum wage pay. In his decision, Mr Justice Parker said: “this challenge was an attack on the economic merits of regulatory reform affecting the labour market in the guise of a common law and legal equity case.”

Whether other schemes such as Employ E will be regarded by the courts as being an “attack on the economic merits of regulatory reform” remains to be seen.

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