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UK – Offshore tax avoidance in recruitment industry, who pays the bill?

05 November 2012

After an investigation by BBC Radio 5 recently claimed that over 24,000 temporary agency staff who mainly work in the UK as supply teachers have been paid by an offshore company, staffing companies or schools may face a multi-million pound bill for outstanding tax and national insurance contributions.

This is because some schools have hired supply teachers through staffing companies that use off-shore companies which do not pay national insurance contributions as they are based abroad. However, liability to pay these contributions still exist and the question remains who will have to pay for the shortfall.

HM Revenue & Customs (HMRC) warned that this arrangement could make either the staffing company or the client firm liable. “These kinds of arrangements are not compliant with tax and National Insurance legislation and the end client, or the employment businesses, may be liable for any underpaid tax and National Insurance,” said an HMRC spokesperson.

“Employers have a legal responsibility to operate PAYE and should be questioning very closely anyone offering quick-fix tax and National Insurance arrangements. We are actively pursuing a growing number of investigations against these types of arrangements, and have already successfully pursued a number of companies for tax, National Insurance and interest where they were not playing by the rules.”

The offshore company ISS (‘Intelligent Salary Services’) is based in the Channel Islands and was responsible for paying 19,000 temporary workers in 2011. As their legal employer, ISS does however not pay national insurance and neither do the recruitment companies.

ISS, which works with over 900 businesses in the UK, told the BBC that it is complying with HMRC codes on taxes and expenses. The company also claims to provide services to “most well-known high street brands”.

Professional Passport, which advises recruiters on tax issues, said rules need to be effectively enforced. “We don't need more rules, or different rules, just effective enforcement of the existing rules,” said director Crawford Temple to the BBC. 

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