Major UK recruiters linked to tax avoidance schemes after workers hit with crippling HMRC demands
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.
Manuel Bernal was not aware he was exposed to 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.
HMRC has pursued around 50,000 people for missing tax
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.
People have protested about the loan charge outside parliament. Pic: PA
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.
Hays is one of the best known recruitment agencies in the UK. Pic: PA
“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.
Capita says it has strict policies to ensure the company and suppliers comply with the law. Pic: PA
Read more:
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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
Some of the world’s leading tech companies are betting big on very small innovations.
Last week, Samsung released its Galaxy Z Fold 7 which – when open – has a thickness of just 4.2mm, one of the slimmest folding phones ever to hit the market.
And Honor, a spin-off from Chinese smartphone company Huawei, will soon ship its latest foldable – the slimmest in the world. Its new Honor Magic V5 model is only 8.8mm thick when folded, and a mere 4.1mm when open.
Apple is also expected to release a foldable in the second half of next year, according to a note by analysts at JPMorgan published this week.
The race to miniaturise technology is speeding up, the ultimate prize being the next evolution in consumer devices.
Whether it be wearable devices, such as smartglasses, watches, rings or foldables – there is enormous market potential for any manufacturer that can make its products small enough.
Despite being thinner than its predecessor, Honor claims its Magic V5 also offers significant improvements to battery life, processing power, and camera capabilities.
Hope Cao, a product expert at Honor told Sky News the progress was “due largely to our silicon carbon battery technology”. These batteries are a next-generation breakthrough that offers higher energy density compared to traditional lithium-ion batteries, and are becoming more common in consumer devices.
The Magic V5. Pic: Honor
Honor also told Sky News it had used its own AI model “to precisely test and find the optimum design, which was both the slimmest, as well as, the most durable.”
However, research and development into miniaturisation goes well beyond just folding phones.
A company that’s been at the forefront of developing augmented reality (AR) glasses, Xreal, was one of the first to release a viable pair to the consumer market.
Xreal’s Ralph Jodice told Sky News “one of our biggest engineering challenges is shrinking powerful augmented reality technology into a form factor that looks and feels like everyday sunglasses”.
Xreal’s specs can display images on the lenses like something out of a sci-fi movie – allowing the wearer to connect most USB-C compatible devices such as phones, laptops and handheld consoles to an IMAX-sized screen anywhere they go.
Pic: Xreal
Experts at The Metaverse Society suggest prices of these wearable devices could be lowered by shifting the burden of computing from the headset to a mobile phone or computer, whose battery and processor would power the glasses via a cable.
However, despite the daunting challenge, companies are doubling down on research and making leaps in the area.
Social media giant Meta is also vying for dominance in the miniature market.
Ray-Ban Meta AI glasses are shown off at the annual British Educational Training and Technology conference. Pic: PA
Meta’s Ray-Ban sunglasses (to which they recently added an Oakley range), cannot project images on the lenses like the pair from Xreal – instead they can capture photos, footage and sound. When connected to a smartphone they can even use your phone’s 5G connection to ask Meta’s AI what you’re looking at, and ask how to save a particular type of houseplant for example.
Gareth Sutcliffe, a tech and media analyst at Enders Analysis, tells Sky News wearables “are a green field opportunity for Meta and Google” to capture a market of “hundreds of millions of users if these devices sell at similar rates to mobile phones”.
Li-Chen Miller, Meta’s vice president of product and wearables, recently said: “You’d be hard-pressed to find a more interesting engineering problem in the company than the one that’s at the intersection of these two dynamics, building glasses [with onboard technology] that people are comfortable wearing on their faces for extended periods of time … and willing to wear them around friends, family, and others nearby.”
Mr Sutcliffe points out that “Meta’s R&D spend on wearables looks extraordinary in the context of limited sales now, but should the category explode in popularity, it will be seen as a great strategic bet.”
Facebook founder Mark Zuckerberg’s long-term aim is to combine the abilities of both Xreal and the Ray-Bans into a fully functioning pair of smartglasses, capable of capturing content, as well as display graphics onscreen.
However, despite recently showcasing a prototype model, the company was at pains to point out that it was still far from ready for the consumer market.
This race is a marathon not a sprint – or as Sutcliffe tells Sky News “a decade-long slog” – but 17 years after the release of the first iPhone, people are beginning to wonder what will replace it – and it could well be a pair of glasses.
Business
US trade war: The state of play as Trump signs order imposing new tariffs – but there are more delays
Donald Trump’s trade war has been difficult to keep up with, to put it mildly.
For all the threats and bluster of the US election campaign last year to the on-off implementation of trade tariffs – and more threats – since he returned to the White House in January, the president‘s protectionist agenda has been haphazard.
Trading partners, export-focused firms, customs agents and even his own trade team have had a lot on their plates as deadlines were imposed – and then retracted – and the tariff numbers tinkered.
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While the UK was the first country to secure a truce of sorts, described as a “deal”, the vast majority of nations have failed to secure any agreement.
Deal or no deal, no country is on better trading terms with the United States than it was when Trump 2.0 began.
Here, we examine what nations and blocs are on the hook for, and the potential consequences, as Mr Trump’s suspended “reciprocal” tariffs prepare to take effect. That will now not happen until 7 August.
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What does the UK-US trade deal involve?
Why was 1 August such an important date?
To understand the present day, we must first wind the clock back to early April.
Then, Mr Trump proudly showed off a board in the White House Rose Garden containing a list of countries and the tariffs they would immediately face in retaliation for the rates they impose on US-made goods. He called it “liberation day”.
The tariff numbers were big and financial markets took fright.
Just days later, the president announced a 90-day pause in those rates for all countries except China, to allow for negotiations.
The initial deadline of 9 July was then extended again to 1 August. Late on 31 July, Mr Trump signed the executive order but said that the tariff rates would not kick in for seven additional days to allow for the orders to be fully communicated.
Since April, only eight countries or trading blocs have agreed “deals” to limit the reciprocal tariffs and – in some cases – sectoral tariffs already in place.
Who has agreed a deal over the past 120 days?
The UK, Japan, Indonesia, the European Union and South Korea are among the eight to be facing lower rates than had been threatened back in April.
China has not really done a deal but it is no longer facing punitive tariffs above 100%.
Its decision to retaliate against US levies prompted a truce level to be agreed between the pair, pending further talks.
There’s a backlash against the EU over its deal, with many national leaders accusing the European Commission of giving in too easily. A broad 15% rate is to apply, down from the threatened 30%, while the bloc has also committed to US investment and to pay for US-produced natural gas.
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Millions of EU jobs were in firing line
Where does the UK stand?
We’ve already mentioned that the UK was the first to avert the worst of what was threatened.
While a 10% baseline tariff covers the vast majority of the goods we send to the US, aerospace products are exempt.
Our steel sector has not been subjected to Trump’s 50% tariffs and has been facing down a 25% rate. The government announced on Thursday that it would not apply under the terms of a quota system.
UK car exports were on a 25% rate until the end of June when the deal agreed in May took that down to 10% under a similar quota arrangement that exempts the first 100,000 cars from a levy.
Who has not done a deal?
Canada is among the big names facing a 35% baseline tariff rate. That is up from 25% and covers all goods not subject to a US-Mexico-Canada trade agreement that involves rules of origin.
America is its biggest export market and it has long been in Trump’s sights.
Mexico, another country deeply ingrained in the US supply chain, is facing a 30% rate but has been given an extra 90 days to secure a deal.
Brazil is facing a 50% rate. For India, it’s 25%.
What are the consequences?
This is where it all gets a bit woolly – for good reasons.
The trade war is unprecedented in scale, given the global nature of modern business.
It takes time for official statistics to catch up, especially when tariff rates chop and change so much.
Any duties on exports to the United States are a threat to company sales and economic growth alike – in both the US and the rest of the world. Many carmakers, for example, have refused to offer guidance on their outlooks for revenue and profits.
Apple warned on Thursday night that US tariffs would add $1.1bn of costs in the three months to September alone.
Barriers to business are never good but the International Monetary Fund earlier this week raised its forecast for global economic growth this year from 2.8% to 3%.
Some of that increase can be explained by the deals involving major economies, including Japan, the EU and UK.
US growth figures have been skewed by the rush to beat import tariffs.
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The big risk ahead?
It’s a self-inflicted wound.
The elephant in the room is inflation. Countries imposing duties on their imports force the recipient of those goods to foot the additional bill. Do the buyers swallow it or pass it on?
The latest US data contained strong evidence that tariff charges were now making their way down the country’s supply chains, threatening to squeeze American consumers in the months ahead.
It’s why the US central bank has been refusing demands from Mr Trump to cut interest rates. You don’t slow the pace of price rises by making borrowing costs cheaper.
A prolonged period of higher inflation would not go down well with US businesses or voters. It’s why financial markets have followed a recent trend known as TACO, helping stock markets remain at record levels.
The belief is that Trump always chickens out. He may have to back down if inflation takes off.
It is “Liberation Day” III – the third tariff deadline set by Donald Trump.
Countries without bilateral trade agreements will soon face reciprocal tariffs – ranging from 25% to 50% – with a baseline of 15% to 20% for any not making a deal.
He has delayed twice, from April to July and from July to August, but hammered this date home in his trademark caps-on style: “THE AUGUST FIRST DEADLINE STANDS STRONG, AND WILL NOT BE EXTENDED. A BIG DAY FOR AMERICA!!!”
“Will not be extended” for anyone but Mexico, it seems. The country secured a 90-day extension at the last minute, with Mr Trump citing the “complexities” of the border.
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Explained: The US-UK trade deal
By close of business on the eve of deadline, he had a handful of framework deals – some significant – including the UK (10%), the EU, Japan and South Korea (15%), Indonesia and the Philippines (19%), Vietnam (20%).
On the EU agreement, which he struck in Scotland, the president said: “It’s a very powerful deal, it’s a big deal, it’s the biggest of all the deals.”
But what happened to the “90 deals in 90 days” touted by the White House earlier this year?
The short answer is they were replaced by letters of instruction to pay a tariff set by the US.
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How Trump 2.0 changed the world
Amid of flurry of late activity, the US played hardball with major trading partners like Canada.
“For the rest of the world, we’re going to have things done by Friday,” said US Commerce Secretary Howard Lutnick – the “rest of the world” meaning everyone but China.
There is, apparently, the “framework of a deal” between the world’s two largest economies, but talks between Washington and Beijing are continuing.
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Worker begs America for help
In terms of wins, he can claim some significant deals and point to his tariffs having generated an impressive $27bn (£20.4bn) in June, not bad for a single month.
But the legality of the approach is under siege – with the US Court of International Trade ruling that the “Liberation Day” tariffs exceeded the president’s authority, with enforcement paused pending appeal.
The deadline has stirred the pot, forcing a handful of deals onto the table. Whether they stick or survive legal scrutiny is far from settled.
But the playbook remains the same – threaten the world with trade chaos, whittle it down, celebrate the wins, and pray no one checks what’s legal.
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