How? Because most of the people affected don’t even know that they are paying too much tax and even if they were aware there is currently no easy or cost effective way to claim their overpayment back. The whole subject is a minefield, the rules are complicated and accountants and advisers are notoriously expensive.
Inertia tax on those who need it most
Inertia tax. A tenner here, a fiver there – it all mounts up. And it all mounts up to around £1 billion per year in overpaid taxes in HMRC’s coffers. The rules are so complicated and the fear of non-compliance is so oppressive that everyone just shrugs with acceptance and carries on overpaying.
And the people it affects the most are low paid temporary workers and people who work out ‘in the field’ in general. People who, quite often, aren’t earning much more than minimum wage, people who have no job security and people who are quite often travelling a long distance to secure work each day.
So, what specifically are we talking about here?
Under HMRCs rules, if a worker moves between different assignments but remains employed by the same company then he or she can claim tax relief on the expenses covering their travel from home to those different places of work.
How many people do you think are even aware of this, let alone claiming what they should be? The answer is very few.
Who is responsible for getting it right?
Some might suggest that it’s the employers’ responsibility to administrate such a process though the payroll each month, which is a fair comment but lets take a look at a typical scenario. Let’s take one of our clients for example.
A promotional marketing agency has a few thousand people on its database and a few hundred people work for them regularly. Lets say 300 people per month. Each one of these people works between 5 and 20 days per month and each time they travel to a different location, sometimes more than one location in a day.
In order to process the claims, the field workers would need to keep all of their travel receipts, for every single day that they worked, for every single journey even and send them in to the agency to be processed, authorised and signed-off. The pay would then have to be recalculated in accordance with many rules (minimum wage, student loans, pension contributions – the list goes on) and all so that each individual could save a fiver here and a tenner there.
How on earth would an agency keep track of such a monstrous task and be 100% comfortable that they were being completely compliant at the same time? Sadly, it’s such a complicated area that most agencies and other employers of large numbers of field workers wont even attempt the task.
So, exactly what are peoples options?
Once people realise that they are overpaying, the next natural step is to want to do something about it. So, what are the the options?
Well, there are four:
The field worker could use an accountant. They could save up all of their receipts and get an accountant to help them do a Self Assessment at the end of the year and claim tax relief on the years travel expenses. The accountant should also help them offset other expenses such as subsistence and home office costs. The cost of this would be somewhere in the region of £500 per year. The average amount that a person can save.
Score – hassle factor 10 – savings zero.
They could use an ‘Umbrella Payroll’ company. Similar to using an accountant but the expenses are processed weekly or monthly and pay is adjusted approximately one pay run in arrears, according to how regularly receipts are submitted of course. To use an umbrella company you technically have to become its employee. It means that a new contract has to be signed every time a new booking is accepted. That’s loads of paperwork. Plus, the umbrella companies charge about £20 per week. In most cases more than the average amount a person can save.
Score – hassle factor 10 – savings zero.
They could do nothing. They could stay as they are, save themselves the hassle and the headache and pay Inertia Tax.
Score – hassle factor zero -savings zero.
They could get paid through Paycircle. The best option by far. Paycircle is a revolutionary pay and expenses system, specifically designed and engineered to be used by agencies and field workers. Paycircle links to an agencies booking systems and automatically calculates each persons travel expenses at the point at which they are booked on a job. No travel receipts required. The system calculates the route and the mode of transport and the audit trail is saved within the system. The system will also recalculate any time anything changes.Where Paycircle uncovers a saving, it charges 10%. So, if a person saves £10, Paycircle charges £1.
Score – hassle factor zero – savings 10!
OK, so we may be a bit biassed here because its our invention but it is a very cool solution to a problem that is keeping tens, sometimes hundreds of pounds out of peoples pockets and in the Government’s pockets instead each month.
We came across this problem because one of our clients highlighted it to us. And with our background in tax and finance software development and systems design it seemed a pretty easy thing for us to fix.
And, we are totally dedicated to making Optimal Compliance available to everyone after all…