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date: 27 July 2010

embargo: For immediate release

TUC welcomes closure of minimum wage loophole

The TUC welcomes the announcement today (Tuesday) that the Government will change the law from 1 January 2011 to stop payments made into travel and subsistence tax relief schemes from counting towards the national minimum wage (NMW).

An earlier consultation uncovered abuse of these schemes by unscrupulous employers who have used these arrangements to avoid liability to pay National Insurance (NI) contributions, says the TUC.

TUC General Secretary Brendan Barber said: 'This is welcome news. The minimum wage must provide a robust pay floor that supports vulnerable workers.

'In far too many cases travel and subsistence plans have been miss-sold to workers. Rogue employers have exploited these schemes to avoid paying National Insurance and workers have ended up losing out on pension and sick pay entitlements, maternity pay and tax credits.

'The TUC is in favour of taxation that is fair and vigorous in application. Employers and workers have a clear duty to pay their fair share to the Exchequer. In return, the Government's part of the contract is to deliver the high quality public services that we all need.'

NOTES TO EDITORS:

- The Government's announcements can be found at:

http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=414684&SubjectId=2

- What are travel and subsistence tax relief schemes? Temporary workers placed with businesses have traditionally been engaged under 'agency contracts'. This means that each placement is considered to be a permanent place of employment for tax and NI purposes. Consequently, the cost of the worker's travel to the business and any associated subsistence costs are not eligible for tax relief since this is counted as home to work travel. However, in recent years there has been a growth in travel and subsistence schemes operated by some agencies and companies. These schemes involve engaging workers under an employment contract which changes what would otherwise be home to work travel into travel to a temporary workplace. The cost of travel to a temporary workplace and associated subsistence costs are eligible for tax relief and are disregarded for NI purposes. Many travel and subsistence schemes use salary sacrifice arrangements. This means that the worker sacrifices from their gross pay a sum on exchange for the travel and subsistence payments which are paid by the agency or business. No income tax or NI contributions are payable on the travel and subsistence expenses paid or on all the salary sacrificed, which may actually exceed the expenses received.

- Why has the TUC been concerned about these schemes? The TUC has been concerned about the way that these schemes have operated since reduced NI contributions have led to workers losing entitlement to working tax credit, child tax credit, entitlement to state pension, statutory maternity pay, and statutory sick pay. Most had not realised that signing up to a travel and subsistence scheme would have these detrimental effects. The TUC is also concerned to note that the Treasury reports that this loophole costs the Government £85 million per year in lost tax and NI payments.

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Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: egibson@tuc.org.uk

Press release (700 words) issued 27 Jul 2010