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Umbrellas | AccountingWEB | Umbrella companies and PHV tackled on tax day
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Umbrella companies and private hire vehicles tackled on TAM day

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Non-compliance in the umbrella companies market and VAT treatment of private hire vehicles (PHV) top the bill on a subdued Tax Administration and Maintenance day.

18th Apr 2024
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Only four technical tax policy proposals have been published on Tax Administration and Maintenance Day (TAMD), in stark contrast to the 23 that came to light last year.

The consultations cover the VAT treatment of private hire vehicles, tackling non-compliance in the umbrella companies market, VAT treatment of charitable donations, and mandating postcode provision for Freeports and Investment Zones national insurance contributions reliefs.

In its short update, the government said the proposals “support its ambition to make the tax system fairer and tackle non-compliance”.

VAT treatment of private hire vehicles

The first consultation is on the potential tax impacts of the Uber Britannia Limited vs Sefton Borough Council High Court judgement that was handed down on 28 July 2023, as well as the Uber London Limited vs Transport for London High Court judgement from 6 December 2021, on the private hire vehicle (PHV) sector and its passengers.

It’s also inviting views on “potential government interventions” that could help to mitigate any undue adverse effects that these judgments could have on both the PHV sector and its passengers.

The government has noted that when evaluating potential interventions, it has “considered the impact on vulnerable consumers, the fiscal impact it would have on the Exchequer, and the degree to which it would promote fair competition between PHV operators”.

“Taxis (known as hackney carriages in older legislation) are not directly impacted by these court judgments, which sought clarity on whether a licensed PHVO needs to contract with the passenger,” said the consultation document.

“The government has conducted internal analysis on the potential impacts of these court judgments, and the levers that it has at its disposal. This analysis, along with the engagement that has been carried out with the PHV industry, has informed the scope of this consultation.”

It will run for 16 weeks starting on 18 April 2024 and ending on 8 August 2024.

Non-compliance in the umbrella companies market

Concern remains about the “scale of non-compliance” in the umbrella company market, with Dan Neidle stressing at the Festival of Accounting & Bookkeeping that such businesses are huge problems.

While options to reduce tax non-compliance in the market were consulted on last year - with a response set to come to light in due course - HMRC will publish “new guidance later this year”, it has been confirmed, including an online pay checking tool to help umbrella company workers check whether the correct deductions are being made from their pay.

However, details - including dates - remain scarce.

“The government is minded to introduce a due diligence requirement to drive out bad actors from labour supply chains,” it said. “To this end, it will continue to engage with the recruitment industry and other key stakeholders on the detail of a statutory due diligence regime for businesses that use umbrella companies, and ensure it has the best understanding of the impacts that this could have on reducing non-compliance.”

Significant step

Susan Ball, employment tax partner at RSM UK, said believes the announcement marks a “significant step for the umbrella and agency sector, as well as for organisations who use them”.

“As we eagerly await further details of last summer’s consultation, some elements of it appear to have been set aside, and were conspicuously absent from today’s Tax Administration Day summary,” she added.

“There is no mention today of the transfer of payroll tax debt from non-compliant umbrella companies to the recruitment agency or end-client, or imposing PAYE and NIC obligations on recruitment agencies that supply workers who are employed by umbrella companies.

“Concerns on these points may remain though until full details of the consultation are disclosed.”

Ball called it “encouraging” to see mentions of “ongoing engagement with the recruitment industry and other key stakeholders on the specifics of a statutory due diligence regime”.

“This will ensure the government has a comprehensive understanding of the potential impact of any new regime for organisations that use umbrella companies.”

VAT treatment of charitable donations

The shortest policy proposal is on plans to consult on introducing a targeted VAT relief for low value goods that businesses donate to charities for them to give away free of charge to those in need.

As with the umbrella companies proposal, the consultation will be launched later this year.

However, there is again no date for this.

Postcode provision for Freeports and Investment Zones

The fourth and final proposal is regarding plans to bring forward a legislative change to “mandate employers operating in a Freeport or Investment Zone special tax site to provide their employee’s workplace postcode to HMRC if they are claiming the relevant secondary Class 1 National Insurance contributions (NICs) relief through their payroll, in due course”.

One of the eligibility conditions for claiming such reliefs requires employees to be expected to spend 60% of their working time in the Freeport or Investment Zone special tax site, with exceptions applying where “adjustments to working patterns have been made to accommodate the protected characteristics of pregnancy and maternity and disability”.

The government notes that the collection of this data will “help reduce employer error and enable assurance of claims by HMRC without generally requiring HMRC contacting the employer”.

It is now publishing a four-week technical consultation on draft regulations, with the amendments designed to:

  • introduce a new reporting requirement for Freeport and Investment Zone employers who claim the Freeport or Investment Zones NICs reliefs
  • add a requirement for employers who are claiming the Freeport and Investment Zone NICs reliefs, in respect of employees who work in the special tax sites, to include the postcode for the address at which the employee works in their FPS return
  • where an employee has an adjustment and does not need to meet the 60% working time requirement, the employer must still provide in their FPS return the postcode for the address at which the employee works or would work, except for the adjustment made to accommodate the protected characteristic

The consultation will run from 18 April 2024 and close on 15 May 2024.

Stark contrast

The short announcement is in stark contrast to last year’s TAMD, when 23 technical tax policy proposals were published covering the simplification and modernisation of the tax system, tackling non-compliance and making the customs system work better for traders.

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By FactChecker
18th Apr 2024 20:30

Could someone, maybe Susan Ball, please answer two questions regarding 'umbrella companies':

1. Why do they exist (as in who benefits, and how, amongst all the people/entities involved)?
2. The same question ... but this time where no answer is allowed that is based on saving tax?

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By petestar1969
19th Apr 2024 10:03

I always thought that, allegedly, Umbrella Companies move the responsibility for holiday pay, sick pay, etc., away from the real employee (the end user), to someone else, the umbrella company.

Much like Personal Service Companies on a 1-by-1 basis did before IR35 came in.

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