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.
Image: 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.
Image: 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.
Image: 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.
Image: 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.
Image: Capita says it has strict policies to ensure the company and suppliers comply with the law. Pic: PA
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
The owners of New Look, the high street fashion retailer, have picked bankers to oversee a strategic review which is expected to see the company change hands next year.
Sky News has learnt that Rothschild has been appointed in recent days to advise New Look and its shareholders on a potential exit.
The investment bank’s appointment follows a number of unsolicited approaches for the business from unidentified suitors.
New Look, which trades from almost 340 stores and employs about 10,000 people across the UK, is the country’s second-largest womenswear retailer in the 18-to-44 year-old age group.
It has been owned by its current shareholders – Alcentra and Brait – since October 2020.
In April, Sky News reported that the investors were injecting £30m of fresh equity into the business to aid its digital transformation.
Last year, the chain reported sales of £769m, with an improvement in gross margins and a statutory loss before tax of £21.7m – down from £88m the previous year.
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Like most high street retailers, it endured a torrid Covid-19 and engaged in a formal financial restructuring through a company voluntary arrangement.
In the autumn of 2023, it completed a £100m refinancing deal with Blazehill Capital and Wells Fargo.
A spokesperson for New Look declined to comment specifically on the appointment of Rothschild, but said: “Management are focused on running the business and executing the strategy for long-term growth.
“The company is performing well, with strong momentum driven by a successful summer trading period and notable online market share gains.”
Roughly 40% of New Look’s sales are now generated through digital channels, while recent data from the market intelligence firm Kantar showed it had moved into second place in the online 18-44 category, overtaking Shein and ASOS.
The Coca-Cola Company is brewing up a sale of Costa, Britain’s biggest high street coffee chain, more than six years after acquiring the business in a move aimed at helping it reduce its reliance on sugary soft drinks.
Sky News can exclusively reveal that Coca-Cola is working with bankers to hold exploratory talks about a sale of Costa.
Initial talks have already been held with a small number of potential bidders, including private equity firms, City sources said on Saturday.
Lazard, the investment bank, is understood to have been engaged by Coca-Cola to review options for the business and gauge interest from prospective buyers.
Indicative offers are said to be due in the early part of the autumn, although one source cautioned that Coca-Cola could yet decide not to proceed with a sale.
Costa trades from more than 2,000 stores in the UK, and well over 3,000 globally, according to the latest available figures.
It has been reported to have a global workforce numbering 35,000, although Coca-Cola did not respond to several attempts to establish the precise number of outlets currently in operation, or its employee numbers.
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This weekend, analysts said that a sale could crystallise a multibillion pound loss on the £3.9bn sum Coca-Cola agreed to pay to buy Costa from Whitbread, the London-listed owner of the Premier Inn hotel chain, in 2018.
One suggested that Costa might now command a price tag of just £2bn in a sale process.
The disposal proceeds would, in any case, not be material to the Atlanta-based company, which had a market capitalisation at Friday’s closing share price of $304.2bn (£224.9bn).
At the time of the acquisition, Coca-Cola’s chief executive, James Quincey, said: “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide.
“Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand.
“Costa gives us access to this market with a strong coffee platform.”
However, accounts filed at Companies House for Costa show that in 2023 – the last year for which standalone results are available – the coffee chain recorded revenues of £1.22bn.
While this represented a 9% increase on the previous year, it was below the £1.3bn recorded in 2018, the final year before Coca-Cola took control of the business.
Coca-Cola has been grappling with the weak performance of Costa for some time, with Mr Quincey saying on an earnings call last month: “We’re in the mode of reflecting on what we’ve learned, thinking about how we might want to find new avenues to grow in the coffee category while continuing to run the Costa business successfully.”
“It’s still a lot of money we put down, and we wanted that money to work as hard as possible.”
Costa’s 2022 accounts referred to the financial pressures it faced from “the economic environment and inflationary pressures”, resulting in it launching “a restructuring programme to address the scale of overheads and invest for growth”.
Filings show that despite its lacklustre performance, Costa has paid more than £250m in dividends to its owner since the acquisition.
The deal was intended to provide Coca-Cola with a global platform in a growing area of the beverages market.
Costa trades in dozens of countries, including India, Japan, Mexico and Poland, and operates a network of thousands of coffee vending machines internationally under the Costa Express brand.
The chain was founded in 1971 by Italian brothers Sergio and Bruno Costa.
It was sold to Whitbread for £19m in 1995, when it traded from fewer than 40 stores.
The business is now one of Britain’s biggest private sector employers, and has become a ubiquitous presence on high streets across the country.
Its main rivals include Starbucks, Caffe Nero and Pret a Manger – the last of which is being prepared for a stake sale and possible public market flotation.
It has also faced growing competition from more upmarket chains such as Gail’s, the bakeries group, which has also been exploring a sale.
Coca-Cola communications executives in the US and UK did not respond to a series of emails and calls from Sky News seeking comment on its plans for Costa.
TikTok is putting hundreds of jobs at risk in the UK, as it turns to artificial intelligence to assess problematic content.
The video-sharing app said a global restructuring is taking place that means it is “concentrating operations in fewer locations”.
Layoffs are set to affect those working in its trust and safety departments, who focus on content moderation.
Unions have reacted angrily to the move – and claim “it will put TikTok’s millions of British users at risk”.
Figures from the tech giant, obtained by Sky News, suggest more than 85% of the videos removed for violating its community guidelines are now flagged by automated tools.
Meanwhile, it is claimed 99% of problematic content is proactively removed before being reported by users.
Executives also argue that AI systems can help reduce the amount of distressing content that moderation teams are exposed to – with the number of graphic videos viewed by staff falling 60% since this technology was implemented.
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It comes weeks after the Online Safety Act came into force, which means social networks can face huge fines if they fail to stop the spread of harmful material.
The Communication Workers Union has claimed the redundancy announcement “looks likely to be a significant reduction of the platform’s vital moderation teams”.
In a statement, it warned: “Alongside concerns ranging from workplace stress to a lack of clarity over questions such as pay scales and office attendance policy, workers have also raised concerns over the quality of AI in content moderation, believing such ‘alternatives’ to human work to be too vulnerable and ineffective to maintain TikTok user safety.”
John Chadfield, the union’s national officer for tech, said many of its members believe the AI alternatives being used are “hastily developed and immature”.
He also alleged that the layoffs come a week before staff were due to vote on union recognition.
“That TikTok management have announced these cuts just as the company’s workers are about to vote on having their union recognised stinks of union-busting and putting corporate greed over the safety of workers and the public,” he added.
Under the proposed plans, affected employees would see their roles reallocated elsewhere in Europe or handled by third-party providers, with a smaller number of trust and safety roles remaining on British soil.
The tech giant currently employs more than 2,500 people in the UK, and is due to open a new office in central London next year
A TikTok spokesperson said: “We are continuing a reorganisation that we started last year to strengthen our global operating model for Trust and Safety, which includes concentrating our operations in fewer locations globally to ensure that we maximize effectiveness and speed as we evolve this critical function for the company with the benefit of technological advancements.”