A tax avoidance scheme, linked to UK-based umbrella and accountancy solutions firm Andersen Group, is being liquidated in a move that could prevent the HMRC from retrieving millions of pounds, according to the Guardian.

The arrangement of the scheme works by setting up thousands of tiny firms to exploit VAT and national insurance rules that were originally designed to help very small businesses. It has been used by recruitment agencies supplying low-paid workers to businesses.

The Guardian reports that it has seen evidence showing that the closure of parts of the scheme followed Anderson being asked by HMRC’s fraud and investigation service for details about the large numbers of VAT registration applications made on behalf of Anderson clients last year. Documents show that nearly 2,000 of the Anderson scheme’s mini companies are now being simultaneously liquidated. Experts have stated that this will make it difficult to go after defunct firms for repayment of debts.

Each of the mini-companies had a director based out of the Philippines which tax experts said would hinder the ability of the HMRC to investigate and recover taxes.

While some tax experts would argue that the schemes are legal, the Guardian found some that didn’t. Dan Neidle, a tax partner at City law firm Clifford Chance, said that in his view the scheme had been set up to avoid tax. He said: “I am troubled by the involvement of multiple Philippine individuals, when there is no commercial or tax reason to involve anyone offshore. The obvious inference is that the purpose of choosing the Philippines was to hinder HMRC’s ability to investigate and recover any tax due. He went on to suggest that HMRC should “pursue the companies and individuals involved more aggressively than they would if it were just another a failed tax avoidance scheme. A prosecution for tax fraud may not be out of the question.” Jolyon Maugham QC, a tax barrister at Devereux Chambers agreed. He told the Guardian, “aspects of [the structure] look designed to thwart HMRC’s ability to recover tax due to it – and investigate whether it is due”. He added that the scheme appeared to possess features “that would cause me to want to explore whether the promoters have crossed the line into the criminal arena”.

The Anderson Group describes itself as the UK’s largest processor of contractor payroll and its services as the “lowest cost umbrella services in the UK”. The company claims to have 300 employment agency clients though the only one mentioned in the Guardian article is blue-collar/logistics staffing firm 24-7 Recruitment.

This is not the first time that concerns have been raised about the Anderson Group’s tax schemes. In May 2015, The BBC investigated the Andersen Group for allegedly promoting an "aggressive" tax avoidance scheme that exploited the government's Employment Allowance.

Julia Kermode, chief executive of the Freelancer & Contractor Services Association, commented “We are not surprised that such a scheme has been shut down, in a move that provides some much-needed clarity to the market.”

“From time to time we receive enquiries from firms concerned about whether it is appropriate for company directors to be based in the Philippines, and now that we see the 2,000 mini-companies being liquidated this suggests that the model might not work in practice,” Kermode said. “As is often the case, the end-clients, mainly large corporates in this case, were not aware of the arrangements which might also prompt the government to take some action that requires hiring firms to take more responsibility for understanding the practices and processes that take place throughout their supply chain.”

“The existence and promotion of tax avoidance schemes, that seek to exploit incentives designed to help genuine small businesses, in order to provide cheap labour damages the whole workforce solutions industry” added Fiona Coombe, SIA Director of Legal and Regulatory Research.

The Andersen Group has been a main sponsor of the Recruiter Awards including the most recent event in May. The Group is also a member of the Institute of Chartered Accountants in England & Wales (ICAEW) whose Code of Ethics states that members have a responsibility to maintain the reputation of the accountancy profession and have the highest standards of professional conduct.