HM Revenue & Customs is to crack down on UK recruitment industry practices following allegations that hundreds of agencies across the country are running multi-million pound tax avoidance schemes.
The organisation plans to launch an investigation into claims that agencies are using “travel and subsistence” expenses systems for temporary staff, which are believed to both be exploiting low-paid workers and costing taxpayers an estimated £390 million per year.
The scheme works by recruiters blocking out a certain chunk of employees’ weekly wages as expenses. They subsequently claim tax relief on those expenses and take up to 88% of the money as profits rather than keep the 30% to which they are entitled and give the rest back to the worker concerned.
A payslip seen by the Daily Telegraph, which broke the story, revealed that one temp was given 12% of the money claimed back when, in reality, they should have received 70%.
An HMRC spokesman said that it would launch a probe into those recruitment agencies that appeared to be acting in breach of regulations.
“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 gangmaster’s licence,” the spokesman said.
But Andy Hogarth, chief executive of Staffline, which supplies temps to firms such as Tesco and DHL, told the newspaper that use of the tax avoidance system was “rife” within the recruitment sector despite HMRC’s attempts to prevent it.
He claimed that 250,000 of the UK’s 1.3 million-strong temp workforce were caught up in the scheme, which he estimated cost the Treasury an average of £30 per worker, per week – or a total of £390 million per annum.
Although HMRC had published guidance on the issue last year after rulings indicating that such schemes were in breach of tax legislation, Hogarth warned that hundreds of recruiters continued to float the rules in order to undercut “legitimate operators”.
“HMRC cannot police it and there’s huge confusion over what’s right and wrong,” he added.
