HMRC targets temporary staff tax avoidance schemes
Temporary staff agencies have avoided “hundreds of millions” in tax by using a scheme that pairs up all the workers on their books and routes them through lots of individual limited companies.
Uncovering the scheme, a national newspaper said it was similar to one last year that used such ‘mini-employment companies’ to exploit both VAT and the National Insurance Employment Allowance (NI EA).
Signalling that the scheme exposed by the paper is indeed a variant of one already covered by its Spotlight publication, HM Revenue & Customs yesterday confirmed to ContractorUK: “HMRC clearly set out its view last year that these sorts of arrangements simply don’t work”.
An employee of the alleged scheme provider, Premier Payco, disagrees: “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”, the employee unwittingly told the investigation by the Guardian.
'Rules as they're currently written'
Named by the paper as Patrick Griffin, the employee goes onto say that the scheme legally helps clients avoid taxes; is based on “genuine” commercial relationships and reflects tax rules “as they’re currently written.”
His latter comment seems to be referring to the fact that the reliefs which the scheme exploits are legitimate and enshrined in legislation.
For example, for the first of the two exploits, each of the companies housing the two or three agency workers claims the full NI EA (£3,000), with the effect that it entirely wipes out the employer NICs due. The company cannot hold just one worker, as the NI EA has been headed off for single-person ventures.
Secondly, the companies charge VAT at 20% but pay it back to the government at about 12%, in a move that exploits a popular scheme designed to alleviate the compliance burden on companies with revenues under £150,000 (The Flat Rate VAT Scheme).
'Withdraw and notify'
“[HMRC] are investigating and closing down use of these [agency avoidance] schemes,” the Revenue spokesman told ContractorUK. “HMRC strongly advises anyone who has used such a scheme to withdraw and notify.”
Asked whether such tax schemes have grown in number since April -- the Guardian claims they has been “a spike” since then -- the HMRC spokesman declined to be drawn.
But in line with the department, tax barrister Jolyon Maugham QC told the investigation that the scheme would fail the “critical test” -- whether it has been created specifically to avoid tax. In online footage, Griffin and a QC he refers to (but doesn’t name), says it would pass.
'Hundreds of millions, if not billions'
“As I listen to [Griffin’s] answer and as I read the documents…” Maugham told the paper, “it’s abundantly clear to me that this [tax avoidance] 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, and prospectively VAT.”
Asked if the likely loss to the exchequer of such arrangements is indeed ‘in the hundreds of millions’ a year, the Revenue again declined to comment.
The HMRC spokesman would only say: “On behalf of the honest majority, who choose to play by the rules, we are cracking down hard on the minority of cheats who try to get out of paying their fair share.
“More than 600 tax avoidance schemes are currently under investigation, and HMRC has robust compliance procedures to identify and take targeted action against any identified abuse.”