HMRC collected £705m in additional tax through investigations into companies’ payroll taxes over the last year, according to a report.
International law firm Pinsent Masons says that £322m was collected from SMEs, and £383m was collected from large businesses.
HMRC have been cracking down on businesses across the board, with a focus on what it views as disguised self-employment and possible abuses by intermediary labour provider businesses.
Many businesses use umbrella companies to augment their workforce. Umbrella companies employ contract workers directly, invoice businesses for work they undertake, and pay those workers as employees, or self-employed.
While many umbrella companies operate legitimately, some have engaged in tax avoidance via an abuse of travel and subsistence tax reliefs currently available to contract workers. Umbrella companies viewed as abusive by HMRC often pay contractors the minimum wage and then supplement each individual’s income, significantly reducing the amount of tax collected by HMRC.
In April 2016, new legislation was implemented to treat workers from umbrella companies as employed by the company who engaged them and treats each location they work at as their normal workplace. This restricts the expensing of travel and subsistence for workers from umbrella companies.
Paul Noble, tax director at Pinsent Masons, said:
“Payroll tax remains a focus area for HMRC, and it is unlikely that it will take the spotlight off any time soon.
“HMRC has been working to restrict umbrella companies, and we may see the amount of additional revenue begin to fall while they refocus resources to target other areas of perceived avoidance and non-compliance.
“Businesses of all sizes need to be careful to keep tax affairs in order so as to avoid any investigations, and also seek advice where necessary.
“It is also interesting to see that the extra tax collected from SME’s was nearly as much as from big business, which may indicate a disproportionate allocation of resources by HMRC against smaller employers.”