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Clampdown on employers' misuse of salary sacrifice to pay less tax and National Insurance

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From today, the Gangmasters Licensing Authority (GLA) will revoke the licences of employers using salary-sacrifice arrangements to abuse tax-free allowances for workers.

According to the GLA, if employers use salary-sacrifice schemes to breach the requirement to pay national minimum wage, the prohibition of work-finding fees and the requirement to accurately calculate and pay tax and National Insurance, their licences will be revoked.

The GLA states expenses paid to workers and ‘administration fees' levied on workers in relation to travel schemes are non-compliant with regard to salary sacrifice, and that labour providers are required to provide evidence that tax-free expenses have actually been incurred by workers. They can not apply HM Revenue and Customs (HMRC) dispensations granted to other licence holders or employers. 

Where non-compliance is proven, in addition to action from the GLA, the HMRC will also take action to seek arrears of tax, national insurance and national minimum wage.  Penalties and interest will also be sought where appropriate. 

According to HR services provider Staffline, the overall cost to the Treasury of the continued use of this loophole is approximately £0.5 billion but this latest development from the GLA will only go some way to address the regulated sector. 

The GLA has developed its stance as a response to the increasingly prevalent use of salary-sacrifice schemes, where workers are encouraged to sacrifice a proportion of their wages in relation to expenses such as travel and subsistence costs, the aim being to reduce the amount of income tax and National Insurance Contributions payable by both workers and employers.

The GLA has seen cases where minimum wage workers have had over 50% of their pay attributed to expenses, leaving their actual salary and the taxable amount as low as £97 per week.   

This reduction in an employee's National Insurance Contributions can leave employees unable to access contributory tax benefits, such as pensions, Jobseeker's Allowance and Employment and Support Allowance if their contributions in the years preceding a claim are insufficient.

Andy Hogarth, Staffline's chairman and chief executive, said:  "We welcome today's announcement from the GLA, which further highlights the misuse of salary-sacrifice schemes to undercut those not using the schemes and is an encouraging step towards ensuring workers receive the wages and benefits that they are due."