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| Revealed: temp agencies' tax avoidance scheme costs 'hundreds of millions' Revealed: temp agencies' tax avoidance scheme costs 'hundreds of millions' | |
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| An aggressive tax avoidance scheme used by temp recruitment agencies is depriving the taxpayer of “hundreds of millions” of pounds a year, a Guardian investigation has found. | An aggressive tax avoidance scheme used by temp recruitment agencies is depriving the taxpayer of “hundreds of millions” of pounds a year, a Guardian investigation has found. |
| A number of agencies have been making large windfalls by using “contrived” financial arrangements to slash their employer’s national insurance bills. | A number of agencies have been making large windfalls by using “contrived” financial arrangements to slash their employer’s national insurance bills. |
| The schemes also generate millions more pounds for participants by exploiting VAT rules that were originally designed to benefit very small businesses. | The schemes also generate millions more pounds for participants by exploiting VAT rules that were originally designed to benefit very small businesses. |
| Last year, HMRC advised anybody using such a scheme to notify it to “avoid the costs of litigation and minimise any interest and penalties due on underpaid national insurance”. | Last year, HMRC advised anybody using such a scheme to notify it to “avoid the costs of litigation and minimise any interest and penalties due on underpaid national insurance”. |
| However, despite that warning, the Guardian understands there has been a spike in the number of firms marketing similar schemes since April, when the government closed down a different tax avoidance scheme widely used by the employment agency sector. | However, despite that warning, the Guardian understands there has been a spike in the number of firms marketing similar schemes since April, when the government closed down a different tax avoidance scheme widely used by the employment agency sector. |
| Guardian undercover footage shows Patrick Griffin of Premier Payco, a provider of the schemes, outlining how: | Guardian undercover footage shows Patrick Griffin of Premier Payco, a provider of the schemes, outlining how: |
| • Workers’ contracts are being transferred from a single employment agency into a web of thousands of tiny companies that benefit from the tax breaks. | • Workers’ contracts are being transferred from a single employment agency into a web of thousands of tiny companies that benefit from the tax breaks. |
| • Each of the tiny employment companies are ostensibly run by overseas directors, who are based in locations such as the Philippines and Pakistan. | • Each of the tiny employment companies are ostensibly run by overseas directors, who are based in locations such as the Philippines and Pakistan. |
| • Some agencies are keeping these schemes secret from the organisations they are supplying the workers to. | • Some agencies are keeping these schemes secret from the organisations they are supplying the workers to. |
| Asked about the ethics of profiting at the expense of the taxpayer, the Guardian footage shows Griffin saying: “All I can do is explain to you what our product does. It’s right for some businesses and it’s wrong for other businesses. I’ve sat where you’re sat and you make your own judgments and decisions on that. All I can do is present to you the case that what we’re doing is effective, it works and it complies with all of the laws as they’re currently written.” | Asked about the ethics of profiting at the expense of the taxpayer, the Guardian footage shows Griffin saying: “All I can do is explain to you what our product does. It’s right for some businesses and it’s wrong for other businesses. I’ve sat where you’re sat and you make your own judgments and decisions on that. All I can do is present to you the case that what we’re doing is effective, it works and it complies with all of the laws as they’re currently written.” |
| He added: “I never like to comment on morals because everyone’s moral compass is different, isn’t it?” | He added: “I never like to comment on morals because everyone’s moral compass is different, isn’t it?” |
| The discovery of these new schemes comes as part of a series of articles published by the Guardian about modern employment practices and a newly precarious workforce. They will add to the pressure on the already embattled employment agency sector, which has been reeling from separate scandals about the exploitation of low-paid workers at companies such as Sports Direct. | The discovery of these new schemes comes as part of a series of articles published by the Guardian about modern employment practices and a newly precarious workforce. They will add to the pressure on the already embattled employment agency sector, which has been reeling from separate scandals about the exploitation of low-paid workers at companies such as Sports Direct. |
| Griffin said his firm has a QC’s opinion stating the Premier Payco scheme legally helps clients avoid taxes, because it is based on “genuine” commercial relationships between the interacting companies and had not been created specifically to avoid tax. | Griffin said his firm has a QC’s opinion stating the Premier Payco scheme legally helps clients avoid taxes, because it is based on “genuine” commercial relationships between the interacting companies and had not been created specifically to avoid tax. |
| However, not all tax lawyers agree. | However, not all tax lawyers agree. |
| Having been shown Premier Payco marketing documents and viewing sections of the Guardian’s undercover footage, Jolyon Maugham QC, a tax barrister at Devereux Chambers, said: “It’s a not particularly sophisticated piece of failed tax avoidance because having read through the document I have no real doubt that the scheme doesn’t work. So what it does, it piles up tax liabilities in a [tiny] shell company and it does so in a way that the organisers of the scheme know that those tax liabilities will never be met. So that shell company will fold if HMRC ever catches up with it and HMRC – and indeed by extension the rest of us – will be kept out of the tax that we need to fund schools and hospitals and pensions and social care.” | Having been shown Premier Payco marketing documents and viewing sections of the Guardian’s undercover footage, Jolyon Maugham QC, a tax barrister at Devereux Chambers, said: “It’s a not particularly sophisticated piece of failed tax avoidance because having read through the document I have no real doubt that the scheme doesn’t work. So what it does, it piles up tax liabilities in a [tiny] shell company and it does so in a way that the organisers of the scheme know that those tax liabilities will never be met. So that shell company will fold if HMRC ever catches up with it and HMRC – and indeed by extension the rest of us – will be kept out of the tax that we need to fund schools and hospitals and pensions and social care.” |
| Maugham added that the salesman was “doing a soft-shoe shuffle on what is the critical question of law, which is whether one of the main purposes of these arrangements is to obtain a tax saving. As I listen to [Griffin’s] answer and as I read the documents you’ve been provided with, it’s abundantly clear to me that this is one of the main purposes. | Maugham added that the salesman was “doing a soft-shoe shuffle on what is the critical question of law, which is whether one of the main purposes of these arrangements is to obtain a tax saving. As I listen to [Griffin’s] answer and as I read the documents you’ve been provided with, it’s abundantly clear to me that this is one of the main purposes. |
| “It is perfectly reasonable to think the loss to the exchequer of this sort of abuse runs into the hundreds of millions if not billions of NICs [national insurance contributions], and prospectively VAT.” | “It is perfectly reasonable to think the loss to the exchequer of this sort of abuse runs into the hundreds of millions if not billions of NICs [national insurance contributions], and prospectively VAT.” |
| The sale of these schemes is being ramped up despite concern about their efficacy, the Guardian understands. | The sale of these schemes is being ramped up despite concern about their efficacy, the Guardian understands. |
| Last year, HMRC issued a notice specifically about such schemes, following a BBC report on similar arrangements being marketed by a supplier called Anderson Group. | Last year, HMRC issued a notice specifically about such schemes, following a BBC report on similar arrangements being marketed by a supplier called Anderson Group. |
| In its notice , HMRC said: “Attempted avoidance schemes like this, which seek to use artificial and contrived arrangements to get an unintended advantage, do not work. HMRC’s firm view is that such schemes are notifiable under the disclosure of tax avoidance schemes (Dotas) rules. Anyone who comes within the meaning of a promoter for such a scheme who has not notified it under the Dotas rules could be liable for a fine of up to £1m”. | In its notice , HMRC said: “Attempted avoidance schemes like this, which seek to use artificial and contrived arrangements to get an unintended advantage, do not work. HMRC’s firm view is that such schemes are notifiable under the disclosure of tax avoidance schemes (Dotas) rules. Anyone who comes within the meaning of a promoter for such a scheme who has not notified it under the Dotas rules could be liable for a fine of up to £1m”. |
| However, Maugham added that his knowledge of the market suggested HMRC was “just letting it slide”. | However, Maugham added that his knowledge of the market suggested HMRC was “just letting it slide”. |
| Meanwhile, the Guardian’s undercover footage shows Griffin questioning HMRC’s ability to prevent the schemes: “That [HMRC notice is] from June 2015 and the company they investigated doubled their size since then. I know that’s not very scientific. I know that’s not a piece of paper from HMRC but it’s relatively good anecdotal evidence that while they don’t like it, the way things are at the moment, there’s not a lot they can do about it. | Meanwhile, the Guardian’s undercover footage shows Griffin questioning HMRC’s ability to prevent the schemes: “That [HMRC notice is] from June 2015 and the company they investigated doubled their size since then. I know that’s not very scientific. I know that’s not a piece of paper from HMRC but it’s relatively good anecdotal evidence that while they don’t like it, the way things are at the moment, there’s not a lot they can do about it. |
| “Other ways they could attack it? You’ve already got Dotas but [ours is] not a tax avoidance scheme so you don’t have to declare it to Dotas. You’ve already got GAAR [general anti-abuse rule] … We’ve got a series of commercial transactions all of which have signed, legally binding contracts binding the parties to do what it is they’re supposed to do, so the advice that I’ve got is that at the moment, nothing that we’re doing falls under GAAR.” | “Other ways they could attack it? You’ve already got Dotas but [ours is] not a tax avoidance scheme so you don’t have to declare it to Dotas. You’ve already got GAAR [general anti-abuse rule] … We’ve got a series of commercial transactions all of which have signed, legally binding contracts binding the parties to do what it is they’re supposed to do, so the advice that I’ve got is that at the moment, nothing that we’re doing falls under GAAR.” |
| The employment agencies identified by the Guardian as using these schemes supply temporary labour to some of the UK’s best known brands, as well as the public sector. | The employment agencies identified by the Guardian as using these schemes supply temporary labour to some of the UK’s best known brands, as well as the public sector. |
| Premier Payco, which claims to have 6,000 workers enrolled on its system, cites recruitment group Mtrec as one of its clients. Mtrec supplies workers to the NHS as well as to a series of industrial clients. | Premier Payco, which claims to have 6,000 workers enrolled on its system, cites recruitment group Mtrec as one of its clients. Mtrec supplies workers to the NHS as well as to a series of industrial clients. |
| HRGo, an agency that uses a similar product, has a major contract with support services group G4S and says it supplies workers to the NHS as well as the prison service. | HRGo, an agency that uses a similar product, has a major contract with support services group G4S and says it supplies workers to the NHS as well as the prison service. |
| Another employment agency called Jark, which also places its workers with the NHS as well as FTSE 100 companies such as Shell and Burberry, is understood to be using an employment allowance product supplied by the financial services group Contrella. | Another employment agency called Jark, which also places its workers with the NHS as well as FTSE 100 companies such as Shell and Burberry, is understood to be using an employment allowance product supplied by the financial services group Contrella. |
| Because each mini employment company created in these schemes employs only two or three workers, the taxes it has to pay on its wage bill are small. | Because each mini employment company created in these schemes employs only two or three workers, the taxes it has to pay on its wage bill are small. |
| That small tax bill can be effectively eradicated by each mini company claiming a £3,000 government subsidy called the employment allowance, which can only be claimed once by a company and was designed to help very small businesses create more jobs or increase wages. | That small tax bill can be effectively eradicated by each mini company claiming a £3,000 government subsidy called the employment allowance, which can only be claimed once by a company and was designed to help very small businesses create more jobs or increase wages. |
| The mini employment companies can also generate an additional windfall by charging VAT at 20% but paying it back to the government at about 12%, exploiting arrangements designed to free very small businesses with revenues of less than £150,000 a year from red tape. | The mini employment companies can also generate an additional windfall by charging VAT at 20% but paying it back to the government at about 12%, exploiting arrangements designed to free very small businesses with revenues of less than £150,000 a year from red tape. |
| Marketing materials produced by Premier Payco, and seen by the Guardian, claim the company has 6,000 temporary workers enrolled in its scheme. Along with similar products supplied by providers such as Contrella and Anderson Group, one employment agency insider calculates the exchequer is losing about £100m a year from the schemes alone. | Marketing materials produced by Premier Payco, and seen by the Guardian, claim the company has 6,000 temporary workers enrolled in its scheme. Along with similar products supplied by providers such as Contrella and Anderson Group, one employment agency insider calculates the exchequer is losing about £100m a year from the schemes alone. |
| A spokesman for Premier Payco said: “We are confident that we operate within all relevant guidance and legislation and we constantly review the regulatory landscape to ensure our ongoing compliance by reference to leading counsel, tax advisers and employment specialists.” | A spokesman for Premier Payco said: “We are confident that we operate within all relevant guidance and legislation and we constantly review the regulatory landscape to ensure our ongoing compliance by reference to leading counsel, tax advisers and employment specialists.” |
| Anderson Group said it had taken QCs’ advice on the services to ensure the arrangements were legal and compliant with any relevant legislation and that it had offered schemes on behalf of a client. Contrella did not respond to invitations to comment. | Anderson Group said it had taken QCs’ advice on the services to ensure the arrangements were legal and compliant with any relevant legislation and that it had offered schemes on behalf of a client. Contrella did not respond to invitations to comment. |
| Among the agencies using this type of arrangement, HRGo and Jark said they took compliance seriously and that they had taken legal advice before signing up with any suppliers of this type of scheme. Mtrec did not respond to invitations to comment. | Among the agencies using this type of arrangement, HRGo and Jark said they took compliance seriously and that they had taken legal advice before signing up with any suppliers of this type of scheme. Mtrec did not respond to invitations to comment. |
| Burberry and G4S said they had not benefited from any of the tax arrangements of their employment agencies. Shell declined to comment. | Burberry and G4S said they had not benefited from any of the tax arrangements of their employment agencies. Shell declined to comment. |