HMRC have issued a statement to Umbrella Companies to address what they call Pay Day by Pay Day Tax Relief.

The statement is to address the way some Umbrella Companies get around the issue of when paying the statutory national minimum wage there are sometimes insufficient funds left over to pay tax free all of the contractors (the umbrella company's employee) expenses.

Some companies have worked around this by paying the national minimum wage but then applying tax relief for expenses that the contractor has incurred and thereby increasing the contractors take home pay.

HMRC have said this relief can't be applied this way but needs to be claimed annually by the contractor.

The full guidance is available at:

http://www.hmrc.gov.uk/news/relief-models.htm

At PayMatters this is not a tax relief we have ever used but have always adhered to our understanding that expenses have to be restricted if there are insufficient funds to meet all the statutory payments (ie the minimum wage and holiday pay).