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Backpay Demands Could Force Dozens of Disability Charities into Insolvency

Written by: Keith Tully

Reviewed: Friday 25th August, 2017

Demands being made of charities by HMRC for money owed in relation to back payment of employees could force dozens of third sector organisations into perilous financial situations.

That’s according to leading charity groups, including Mencap, which is worried that the demands on learning disability charities could be disastrous for the sector.

The issue relates to the subject of backpay and how much employees in the third sector should be paid for hours they work overnight looking after people who need round-the-clock care in their homes or at specialist facilities.  

In the past, flat fees have been paid for overnight stays under these circumstances of roughly £25 or £35 but the latest government guidance insists that National Minimum Wage (NMW) laws should apply even if the employees involved spend time sleeping during their working hours.

As a result, charities are now being asked to pay money to HMRC to cover amounts owed as backpay to employees who should have been paid at MMW in recent years but weren’t.

Estimates vary but Mencap, which is the leading learning disabilities charity in the UK, has cited research by the consulting firm Cordis Bright which suggests that up to £400 million could now be collectively owed to HMRC by charities in relation to employee backpay.

The organisation has urged the government to rethink its policy in this context and expressed fears that HMRC’s demands could force many smaller scale learning disability charity groups into insolvency.

“The unintended consequences [of rule changes] have been disastrous as HMRC have begun enforcement action demanding 6 years back pay,” said Derek Lewis, chairman of Mencap.

“For many smaller care providers across the country the financial impact will be devastating. The resulting multiple insolvencies will be more serious than Southern Cross because there will be no alternative providers available, as local authorities are already finding.”

Southern Cross was a privately financed care home business which collapsed in 2011 when it ran 750 facilities and had roughly 31,000 residents around the UK. 

Mencap’s Derek Lewis recently said that HMRC’s payment demands of charities across the country “have already been issued and the clock is ticking”.  

Keith Tully

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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