‘Nothing short of robbery’

Dodgy recruitment agencies are cheating the taxpayer out of “hundreds of millions” of pounds, a Guardian investigation has found.

Temp agencies have raked in cash through “contrived” financial schemes that dramatically reduce their employer’s national insurance bills and exploit VAT rules designed to help very small businesses.

Undercover footage filmed by the Guardian shows Patrick Griffin from Premier Payco, a provider of the schemes, explaining how the scam works.

Griffin said that temporary employee contracts are moved from an agency’s books into a network of thousands of small companies – often made up of just two people –  to take advantage of tax breaks.

The agency can claim a ÂŁ3,000 national insurance allowance, meant to encourage very small businesses to take on staff, for each company it controls, as well as charging VAT at 20 percent whilst paying it back to the government at 12 percent or lower. If an agency puts 1000 workers in 500 such companies, it stands to make at least ÂŁ1.5m.

On paper the companies are run by directors in countries such as Pakistan and the Philippines. Griffin also explained that some agencies do not tell the organisations they supply workers to about the tax avoidance schemes.

The Guardian discovered that the number of companies selling the scheme has increased since April, even though HMRC has warned that it will impose heavy fines on employers that attempt to avoid paying national insurance. The schemes are also being used by agencies, such as Mtrec and HRGO, that supply staff to the NHS and the prison service.

Commenting on the findings, Devereux Chambers’ tax barrister, Jolyon Maugham QC, said “the loss to the exchequer of this sort of abuse runs into the hundreds of millions, if not billions, of national insurance contributions, and prospectively VAT”.

Labour’s shadow chief secretary to the Treasury, Rebecca Long-Bailey, said, “This is yet another example of how some unscrupulous employment agencies are exploiting loopholes in the law in their pursuit of profit.

“Not only do these kind of tax avoidance schemes place workers employed by agencies involved in an unacceptably precarious position, not knowing what will happen to their jobs should the company be investigated, it denies the Exchequer of significant revenue.”

Unite assistant general secretary, Steve Turner, said the schemes were “nothing short of robbery”.

“Temporary employees already exist in horribly precarious work positions with little to no job security and very low pay. Not only are dodgy employment agencies unfair to staff, it has now been shown that they exploiting tax loopholes to get out of paying their fair share to society,” said Turner.

“This government has stripped HRMC to the bone and allowed tax avoidance to thrive. Agencies are getting away with nothing short of the robbery of hundreds of millions of pounds from the taxpayer by exploiting already vulnerable workers. It cannot be allowed to carry on.”