‘Comical’ directorship ban for umbrella company boss Adrian Sacco condemned
An umbrella company boss who owed HMRC £4.1million when his company was liquidated has been slapped with a director’s disqualification for eight years.
Despite the hefty-sounding ban for Adrian Sacco of Best Employment Services, advisers to the workers who used his services (specialist, high-earning contractors) say it is akin to a slapped wrist.
Warning that unsuspecting workers who used Manchester-registered ‘BES’ could still face tax debts, Carolyn Walsh, a former tax inspector is one of those advisers.
'Deserves a ban for life'
Ms Walsh told ContractorUK: “A director who sets up a company with no intention of meeting a director’s responsibilities, or worse sets up a company with the intention to defraud HMRC and its own staff, and Sacco intended both, isn’t a director but deserves a directorship ban for life.”
Tax lawyer Rebecca Seeley Harris agrees eight years looks lenient for Sacco, who dodged tax by using an Isle of Man network of companies and shifting BES’s assets to an Anguilla-based firm.
“If the government regulated the umbrella company industry it may be easier for these types of schemes to be policed, yet it does also depend on the services being continually used.”
'Sacco gets off lightly'
Boss at ReLegal Consulting, Seeley Harris continued to ContractorUK: “Sacco specifically hit high-earning contractors, who HMRC could now seek to recover part of the lost tax from.
“And although he may have been disqualified as a director, it now depends on whether HMRC can recover any losses from him -- personally. Otherwise he gets off lightly.”
The Insolvency Service last week reassured that “efforts are being made to recover the funds” – although that recovery effort relates to just one aspect of Sacco’s three-part swindle.
Part one centred on clients paying BES contractors as normal, but then instead of him paying their wages with taxes deducted, Sacco paid just a bit via PAYE and the rest as a loan.
The effect was that neither PAYE nor National Insurance was deducted and paid for the loan portion of employees’ remuneration as it should have been, the Insolvency Service said.
Part two involved BES outsourcing ‘admin functions’ to the Isle of Man firms, which BES’s profits were split between each month, reducing total profit and its corporation tax bill in turn.
Part three saw Sacco transfer BES contractors’ outstanding loans to Retentia Services Ltd, of Anguilla, with a £20million loan book exchanged by BES for an indemnity agreement.
'Millions in unpaid tax'
The Insolvency Service explained that this effectively sham agreement (no claims which the indemnity would be liable for were ever to be made) saw BES retain fewer financial assets.
And crucially Retentia was dissolved before the loans fell due so the loans made by BES were never recovered and the proper tax on them never paid, before BES liquidated in 2019.
“Following the liquidation…[and a] claim by HMRC for £2.7m in relation to unpaid corporation tax, the High Court also approved the liquidators winding-up order for the company in Anguilla, and efforts are being made to recover funds,” the Insolvency Service said.
As to the sums involved at liquidation as of March 2019, HMRC calculated missing corporation tax, PAYE, VAT and interest totalling £4.1million.
'Criminality behind a veil of incorporation'
But that figure of outstanding monies for HMRC is “expected to increase,” officials say.
“This is effectively criminal actions [by Sacco] hiding behind a veil of incorporation,” denounced ex-tax official Ms Walsh, now the managing director of CWC Solutions.
“But unfortunately for contractors, and for the taxpayer at large, this will be just the first of very many [brushes with] individuals masquerading as a bonafide umbrella bosses.
“Looking at just the Sacco case alone, I bet the total lost from his abusive tapping into the labour market will end up making [Channel 4 series] ‘Benefit Street’ look like a picnic.”
In line with the adviser’s assessment, the investigation into Sacco identified him as a co-owner of one of the Isle of Man companies, meaning he received income from it.
'Contempt for contractors'
Investigators also found as much as almost £25million was paid to the firms by BES and its 55-year-old boss, who previously directed several other dissolved/liquidated payroll bureau.
Effective from May 24th 2022, the new disqualification order against Sacco prevents his direct or indirect involvement, in the promotion, formation, or management of a company.
Mark Bruce, chief investigator at the Insolvency Service said: “Sacco has failed in his duties to his employees whilst wilfully abusing the tax system for his own personal benefit.
“He has shown complete contempt for taxpayers, and to those his company was supposed to be providing a service to.
“This disqualification should serve as a warning to any other company directors who may be tempted to operate similar business models and flout their obligations, that they will be investigated and punished.”
Yet Robert Sharp, boss of Orca Pay Group sounds torn between laughing and crying.
He told ContractorUK: “Being completely honest, having read…[about the Sacco case], I don’t think it’s punishment [for him] at all.
“Even more without doubt, being banned as a director for eight years will not deter others from conducting [similar swindles].
“In fact, right now, it’s worse than it’s ever been in my opinion, and the message from HMT that if you steal from the taxpayer we will find you, investigate you and will ban you – albeit just as a director [for a while], is comical.”
'Too good to be true take-home is still too without consequences'
Originally from Malta, Adrian Benedict Sacco admitted failing in his fiduciary duty as a director, and breaching the Companies Act 2006 by failing to act with reasonable care, skill and diligence.
Marketing itself to HR, engineering and IT contractors, BES claimed that based on an income of £100,000, contractors could retain £90,000, compared to £75,000 if they declared earnings through a limited company, or £55,000 if they were taxed as a standard PAYE employee.
“In 2022 it’s still too without consequences to offer ‘too good to be true’ take-home pay,” condemned Ms Walsh, who is also boss at ICAEW member firm Andraste Accounting.
“It’s been almost standard operating procedure in the rogue umbrella payroll sector for a long time. HMRC putting debt provision legislation in place has helped a bit, as did tax officials contacting professional bodies, hirers and agencies individually. But as Sacco has shown, it’s unfortunately still so easy to just siphon off for yourself the millions that flow through the UK labour market.”