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UK – Staffing industry to be investigated over tax avoidance schemes

23 July 2012

The staffing industry in the UK will be investigated by HM Revenue & Customs after it has emerged that hundreds of recruitment companies have allegedly avoided paying tax estimated to lie at £390 million.

The tax office is scrutinising staffing firms over “non-compliant expenses schemes” for agency staff who receive travel and subsistence expenses. Under these schemes, recruitment companies use some of the workers’ weekly salaries as expenses. These expenses have then been claimed as tax relief.

The Telegraph reported on Sunday that staffing firms claiming tax relief on such expenses “bank most of the money they receive as profit, rather than passing what is rightfully owed onto the low-paid employee.” The paper claims to have seen evidence of staffing firms using such “outlawed schemes” with some companies taking 88% of tax relief as opposed to 30%.

“These kinds of arrangements do not comply with tax rules and may result in workers not being paid the minimum wage. Employers who use these kinds of arrangements risk penalties from HMRC and the loss of their gangmasters license. Most employers comply with their legal obligations but those that don't are seeking to undercut genuine gangmasters, exploit their workers and also cheat the exchequer,” an HMRC spokesman told the paper.

Andy Hogarth, chief executive of Staffline, also said to the paper that such tax avoidance schemes are “rife” in the staffing industry, claiming 250,000 temporary workers are affected by this. “Recruiters do this to undercut all the legitimate operators. HMRC cannot police it and there's huge confusion over what's right and wrong,” he said.

The Recruitment and Employment Confederation (REC), which represents 3,700 employment agencies, have urged the tax authority to clarify the rules.

Law firm Osborne Clarke explained earlier this year that travel expenses “can only be paid tax free where the expense is incurred in connection with travel by an umbrella worker to a temporary work place.”

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