Government clampdown on abuse of tax break for temps’ travel expenses

The government could crack down on the “abuse” by some umbrella organisations and employment agencies of the rules around tax relief for travel expenses claimed by temporary workers.

The Treasury has launched a consultation on ‘Tax relief for travel expenses: temporary workers and overarching contracts’.

The government fears that some umbrella organisations and employment agencies using overarching employment contracts are abusing the travel expenses rules by encouraging their workers to claim expenses which were not genuinely incurred or for which no relief is due. In addition, when HM Revenue & Customs tries to claim the tax owed they can often encounter difficulties as some of these companies have been wound up and the workers moved to a new company without paying the tax and national revenue due.

The current rules mean that the use of overarching contracts allows some temporary workers to claim tax relief for travel between home and the workplace. The government is concerned that the rules were not intended to be used in this way and that is it unfair for some workers to benefit from tax relief when others working in similar circumstances do not.

A Treasury spokesman said: “The government is concerned by the growing use of umbrella companies to obtain tax relief for travel expenses that would not be available to other workers. Evidence gathered during this consultation will help us to determine the extent of this problem, whether action is required and , if so, what form it might take.”

The consultation is open until 13 October 2008.