Hays, Capita, Petrofac. These are some of Britain’s best known companies and big players in the recruitment industry. 

Now, a Sky News investigation has revealed how, over the course of two decades, some of Britain’s biggest recruitment companies were linked to large-scale tax avoidance when placing workers into jobs, including government roles in Whitehall.

Many of these workers, typically agency workers and contractors, were paid by third-party umbrella companies that promised to take care of taxes but were operating tax avoidance schemes.

They worked by paying workers what were technically loans, instead of a salary. This allowed them to circumvent paying income tax.

Often the umbrellas were recommended by recruiters, although there is no suggestion the recruiters knew these third-parties were operating tax avoidance schemes.

It is the latest revelation in a scandal that has caused untold misery for tens of thousands of people, who signed up with umbrella companies and were enrolled in tax avoidance schemes, thinking they were above board.

Many feel let down by the recruitment agencies who provided information linking them to the umbrella companies. They were not legally responsible for collecting the tax, as they did not run the payroll.

But the government is now strengthening the law to make them accountable for the tax collected by umbrella agencies on behalf of the workers they supply.

Tax avoidance is legal but HMRC has successfully challenged tax avoidance schemes in the courts and workers have subsequently asked to pay the missing tax.

In some cases, the tax demands have been crippling. It’s a campaign that has driven people to the brink of bankruptcy, devastated families and has been linked to 10 suicides.

Manuel’s story

Manuel Bernal did not doubt his working arrangement after taking on a piping supervisor job through Atlantic Resourcing, the recruitment arm of the energy giant Petrofac. In 2006, he was placed on an EDF plant in the Shetlands.

He received a contract between Atlantic Resourcing and an umbrella company, which managed his pay.

Weeks after he started working, he says he was pushed into an arrangement with a different company, which took over the payments. Hundreds of people were working on the site and “everybody on the management side was on that scheme”, he said.

Mr Bernal was assured that everything was above board. He did not know that he was in a tax avoidance scheme.

The company was paying him a loan instead of a salary, via a trust, so avoided income tax and National Insurance.

However, HMRC soon caught on and demanded he pay the missing tax for what it now deemed disguised remuneration.

“At the time, I was in two minds [whether] to pay or not to pay… At the time I couldn’t pay. I was short of money because I had cancer and I couldn’t work… I thought, ‘why should they not pay any money?'” said Mr Bernal.

Tax avoidance is the exploitation of legal loopholes to pay less tax. It is legal. It is not the same as tax evasion, which involves not paying or underpaying taxes and is illegal.

The scheme Mr Bernal was in, like other tax avoidance schemes, stretched the boundaries of the law.

Years later, HMRC successfully challenged the lawfulness of loan schemes in the courts. Workers paid the price. Irrespective of how they entered the schemes, they were deemed responsible for their own tax affairs.

In a statement, Petrofac said: “Like any other company, we are not involved in, or responsible for, the administration of taxes for self-employed limited company contractors.”

The company stopped using umbrella agencies in 2016 after an internal review.

Six-figure demands

Manuel got off comparatively lightly. Having only worked at the site for a few months, his bill came in at £4,000, but others are facing six-figure demands. HMRC has pursued around 50,000 people.

Schemes like these proliferated from the early 2000s.

At the time the use of umbrella companies was becoming popular as workers were worried about falling foul of new rules – originally designed by Gordon Brown – that clamped down on contractors operating as limited companies.

Umbrella companies would manage the payroll so that businesses could avoid bringing workers onto their direct payroll. Others asked workers, like Manuel, to declare as self-employed, while continuing to distribute their pay.

Many umbrellas paid PAYE to the exchequer, but tax avoidance companies also entered the market.

Workers assumed their tax was being paid, but the schemes were pocketing deductions instead of passing them on to the exchequer.

The Treasury became alert to the scale of the missing tax revenue and sought to recoup it – not from the companies but from the individuals.

These schemes were deemed disguised remuneration and, in his 2016 budget, former chancellor George Osborne brought in the loan charge.

In its original form, the loan charge calculated the tax on up to 20 years of income as if it was earned in one financial year – 2018/19. The resulting sums caused considerable financial distress.

Mr Bernal said: “(HMRC) kept sending letters when I was in hospital and my wife had to deal with it. Eventually, I sent in a doctor’s report and they stopped.”

‘I trusted them’

Loan schemes became enmeshed in the recruitment supply chain.

Many recruiters were not aware the umbrella companies they were working with were tax avoidance schemes. However, the strength of their recommendations often gave workers confidence.

John (not his real name), an IT worker, felt he was in safe hands when he used an umbrella company that was on an approved list given to him by the recruiter Hays in 2010.

“I thought Hays is one of the biggest recruitment companies in the country,” he said. “They’re saying they are okay, so I started using them.”

Hays said it “engages only with umbrella companies that appropriately meet legal and financial obligations… We conduct thorough due diligence… we recommend (contractors) also do their due diligence”.

HMRC has previously warned recruitment agencies they face penalties if they refer people to non-compliant umbrella companies but it has not confirmed whether fines have ever been levied.

Meanwhile, new tax avoidance promoters continue to enter the market.

A recent government report concluded there could be “70 to 80 non-compliant umbrella companies involved in the operation of disguised remuneration avoidance schemes”.

Crackdown

The government is now attempting to clean up the industry. It plans to hold recruitment companies legally responsible for PAYE, rather than umbrella companies.

Sky News understands that the Treasury will today unveil a package of reforms it will consult on as part of a crackdown on tax avoidance schemes.

However, this offers little respite to those who have already fallen victim to these schemes.

While in opposition, key Labour Party figures railed against what they described as mis-selling and promised they would review the policy.

The government has now launched an independent review into the loan charge – and HMRC is pausing its activity until that review is complete – but its focus is on helping people to reach a settlement. The review will not look at the historical role of promoters and recruitment agencies.

That is a bitter pill to swallow for those affected by the loan charge, particularly as many of them were working for the government itself.

‘I sent them a suicide note’

Peter (not his real name) worked at the Department for Business, Innovation and Skills as a project manager for the regional growth fund, a role he was recruited into in 2012 by the agency Capita.

He said Capita recommended he use an umbrella arrangement, which he was told was above board.

“I’m really angry. [Capita] gave me confidence. They are the key agency for central government work… If Capita say something to you then you believe it’s correct. You have to trust what you’re told.”

Capita said: “We have strict policies in place to ensure both Capita and our suppliers comply with relevant law, policies and procedures. Given this was over 12 years ago, we do not have the details to be able to comment on this particular matter.”

Sky News has spoken to other Whitehall workers who have also been affected.

Read more:
Thousands targeted by tax-collecting scheme linked to suicides
HMRC accused of ‘sinister’ tactics in crackdown

After the loan charge came into force, Peter was inundated with letters from HMRC. It became overwhelming and in 2019 he tried to take his own life.

“I sent them [HMRC] a suicide note because I was just fed up with all of this,” he said. “I’ve been on anti-depressants. I live in denial. I drink alcohol sometimes quite a bit.”

HMRC said it takes the wellbeing of taxpayers seriously and believes it has made significant improvements to its support services in recent years.

The government department Peter worked for has since been fashioned into the Department for Business and Trade.

It said it was unable to comment on the previous department’s arrangements with Capita but said the government was cracking down on non-compliant umbrella companies.

Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK. In the US, call the Samaritans branch in your area or 1 (800) 273-TALK

If you’re already feeling overwhelmed by the sheer amount of news to ingest on Donald Trump’s tariffs plans in recent weeks, well, you’re not alone.

One measure of “policy uncertainty”, which measures how much certain issues are dominating news coverage, shows that the uncertainty levels over trade are currently higher than they’ve been in decades.

But even that index struggles to capture the extent of uncertainty.

Will the on-again off-again tariffs on Canada and Mexico actually be implemented? What about the tariffs on steel and aluminium, due to be implemented this week? So far, the only tariffs that have actually taken effect are the extra 10% levies imposed on China a few weeks ago.

But then Donald Trump has since talked about an extra 10% on top of that, not to mention a set of “reciprocal tariffs” intended mostly to hit the European Union. It’s very hard to keep pace with it all.

However, one of the impacts of all this uncertainty is that US share prices have been performing far worse than their international counterparts.

Many had assumed, based on his behaviour last time around, that Donald Trump would shy away from any decisions causing long-term damage to share prices, but the S&P 500 index is down over 6% since the inauguration, compared to a 12% rise in Germany‘s currency-adjusted index. Some are calling it the “Trump Slump”.

Markets don’t like uncertainty; nor do they like inflation, especially the kind caused by tariffs, which impose an extra cost on all imported items. Whether this is a price worth paying rather depends on what the White House intends to achieve from this.

The ostensible goal – beyond extracting something from countries like China and Canada – is to seek to reindustrialise the US by preventing manufactured goods from entering quite so easily. But is that likely to happen?

For some evidence, look no further than the last time Donald Trump imposed tariffs on metals, back in 2018. The levies on aluminium (then a “mere” 10%) certainly caused a slight rise in domestic production as more smelting capacity was brought back online.

But that bump was short-lived. By the end of his first term, production was back, more or less, to where it was before the tariffs. In the intervening period, aluminium production has dropped to unprecedented lows.

The White House’s argument is that this is down in part to the fact that a) some countries, notably Canada, were excluded from the tariffs and b) the level of tariff was too low. Hence why it’s been raised to 25%. But the aluminium industry itself has said that Canada really needs to be excluded from this round of levies. Will those appeals bear fruit? Again, no-one really knows.

What we do know is that many parts of American industry, from high tech producers of planes and cars, all the way down to soft drinks can manufacturers, rely on imported aluminium. In the very long run, some companies might get old smelters up and running, or build new ones. But it takes years to do so.

In other words, in the intervening period there is likely to be some significant economic pain as the cost of all that metal goes sharply higher.

Nor is it altogether clear whether a rational investor would really put the necessary funds into building a new smelter.

The numbers might add up if the tariffs stay in place. But what guarantee do they have that they will stay in place? Since no-one really knows, the chances of anyone putting their money into that industry are more constrained than usual.

What we do know is that in the meantime, other countries are retaliating with other trade weapons.

China has imposed limits on exports of key metals like tungsten and molybdenum – in both cases it is the world’s biggest producer. That, in turn, will further raise costs for American producers.

The upshot is the coming months and years will be bumpy and tough for the American economy. Then again, trying to re-industrialise a country like America – or for that matter the UK – is no mean feat. Trying to do it at breakneck speed using a set of blunt tariffs is all the harder.

Residents who live near newly installed pylons will be compensated with £250-a-year off their energy bills, a minister has said.

Housing and planning minister Alex Norris told Sky’s Wilfred Frost on Breakfast that communities “need to share the benefits” of the government’s tilt towards clean energy.

“If you’re making that sacrifice of having some of the infrastructure in your community, you should get some of the money back,” he said.

“So we’re making that commitment – £250-a-year if you are near those pylons.

“We think that’s a fair balance between people who are making that commitment to the country… they should be rewarded for that.”

Politics latest: UK advising Ukraine on handling peace talks with the US

Ministers are currently pushing through an overhaul of the planning system – long seen as a brake on housebuilding and vital infrastructure projects – to stimulate growth in the economy.

Overnight it was announced parts of the planning system could be stripped away as part of the government’s attempts to speed up house building.

In its election-winning manifesto, Labour promised to build 1.5 million new homes over the next five years to tackle the lack of affordable housing, with recent statistics showing that there are 123,000 households in temporary accommodation – including nearly 160,000 children.

Sir Keir Starmer has repeatedly vowed to put “builders not blockers first”, announcing at the beginning of the year “unarguable cases” that are legally challenged will only be able to be brought back to the courts once – rather than the current three times.

Councils have also been told to come up with “immediate, mandatory” housing targets to help the government achieve its target.

Under the reforms announced last night, consulting bodies such as Sport England, the Theatres Trust and the Garden History Society will no longer be required for those looking to build under the new plans being considered by ministers.

While consultees will not be completely removed from the process, it will no longer be mandatory for builders to receive the opinion of such bodies and their scope will be “narrowed to focus on heritage, safety and environmental protection”, according to the government.

It is hoped the slimming down of the process will reduce waiting times for projects.

Read more:
What you need to know about stamp duty changes
Welfare cuts are ‘coming soon’

Mr Norris said the interjections of official bodies in planning decisions was causing a “bottleneck” in granting applications.

“I think viewers might be surprised to hear that there are two dozen-plus organisations that have to be consulted on planning applications – that’s providing a bit of a bottleneck, often not getting back in time,” he said.

He said that while members of Sport England were “fine people”, there was a case where the body held up the development in Bradford next to a cricket pitch.

“The hold up is around a disagreement on the speed at which cricket balls are hit,” he explained.

“So Sport England are querying the modelling of the speed at which the balls will be hit, and that, as a result, has meant that the whole process is now multiple years down the line, and there’s no build out.”