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Employment agencies are alleged by some of their competitors to be exploiting a loophole in UK the tax rules, by encouraging their employees to â€œsacrificeâ€? part of their salary in favour of reimbursed via non-taxable expenses.
Marie Samuels, a Benefit Manager at Gap Personnel quoted in the Guardian, said "we went into these schemes because the larger agencies go into the market and set the margins. It is a win-win situation because we can compete for business, the temporary employee has an increase in wage and we get savings ourselves."
The danger is that by reducing the size of an employee's national insurance contribution this could impact on their access to contributory tax benefits, such as pensions and jobseeker's allowance.
Now others are questioning the legitimacy of the practice and claim that it is distorting the market. Andrew Gilchrist, Managing Director of recruitment agency Interaction, said "someone needs to come out and say whether they are legal or illegal. It is an abuse. The Exchequer is losing out and UK workers are losing out."