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:
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
Shares in Elon Musk’s Tesla have reversed sharply over renewed concerns about his focus on the company’s recovery as he plots against Donald Trump.
Shares in the electric car firm plunged by more than 7% at the start of trading on Wall Street – taking about $71bn (£52bn) off its market value.
The stock has often come under pressure since Musk started his association with the president, latterly helping bring down federal government costs through a new department known as DOGE (Department of Government Efficiency).
Money latest: Call centre worker’s tips for getting discounts
But it is now suffering as their political relationship has soured.
Musk has publicly opposed the so-called “big, beautiful bill” – Mr Trump’s flagship tax cut and spending plans that received Congressional approval last week – since he left his DOGE role.
Musk wrote in a post on his X platform on 30 June: “It is obvious with the insane spending of this bill, which increases the debt ceiling by a record FIVE TRILLION DOLLARS that we live in a one-party country – the PORKY PIG PARTY!!”
Once the bill was passed, he created a poll on X, asking people if they would want him to launch the America Party.
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Musk v Trump: ‘The Big, Beautiful Breakup’
He wrote on 4 July: “Independence Day is the perfect time to ask if you want independence from the two-party (some would say uniparty) system!”
The vote ended with 65.4% in favour of creating the party.
The formation of the America Party was announced the following day.
“By a factor of 2 to 1, you want a new political party and you shall have it! When it comes to bankrupting our country with
waste & graft, we live in a one-party system, not a democracy.”
“Today, the America Party is formed to give you back your freedom,” Musk posted.
Trump responded on his Truth Social account: “I am saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks.
“He even wants to start a Third Political Party, despite the fact that they have never succeeded in the United States –
The System seems not designed for them.”
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Trump threatens to ‘put DOGE’ on Musk
Trump has previously threatened to go after Tesla‘s government subsidies and contracts through the DOGE department to save “big” as their relationship deteriorated.
Such threats have also pressured the share price at Tesla.
It has suffered throughout Trump 2.0 and, in fact, has trended lower since last December – shortly after Mr Trump’s election win was confirmed.
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Musk hits out at Tesla succession claim
The possibility of tariff hits to the business, followed by actual tariff disruption, along with a consumer and investor backlash against Musk’s previous DOGE role have contributed to a 35% decline on the December peak.
The very absence of Tesla’s CEO dragged on the shares.
Tesla sales suffered globally as the trade war ramped up due to the imposition of tariffs by a government he supported, until the public row between him and the president began in early June.
Musk had only just renewed his 100% focus on Tesla and his other business interests by that time.
Tesla sales were down during the presidential election campaign last year and continued to decline, on a quarterly basis, during the first half of 2025.
Neil Wilson, UK investor strategist at Saxo Markets, said of the company’s share price woes: “Investors are worried about two things – one is more Trump ire affecting subsidies and the other more importantly is a distracted Musk.
“Investors had cheered Musk stepping back from frontline politics but are now worried he’s going to sucked back in and take his eye off Tesla.”
Business
Post Office scandal: Victims say government’s control of redress schemes should be taken away
Post Office scandal victims are calling for redress schemes to be taken away from the government completely, ahead of the public inquiry publishing its first findings.
Phase 1, which is due back on Tuesday, will report on the human impact of what happened as well as compensation schemes.
“Take (them) off the government completely,” says Jo Hamilton OBE, a high-profile campaigner and former sub-postmistress, who was convicted of stealing from her branch in 2008.
“It’s like the fox in charge of the hen house,” she adds, “because they were the only shareholders of Post Office“.
“So they’re in it up to their necks… So why should they be in charge of giving us financial redress?”
Nearly a third of Ms Hamilton’s life has been dominated by the scandal
Jo and others are hoping Sir Wyn Williams, chairman of the public statutory inquiry, will make recommendations for an independent body to take control of redress schemes.
The inquiry has been examining the Post Office scandal which saw more than 700 people wrongfully convicted between 1999 and 2015.
Sub-postmasters were forced to pay back false accounting shortfalls because of the faulty IT system, Horizon.
At the moment, the Department for Business and Trade administers most of the redress schemes including the Horizon Conviction Redress Scheme and the Group Litigation Order (GLO) Scheme.
The Post Office is still responsible for the Horizon Shortfall scheme.
Lee Castleton OBE
Lee Castleton OBE, another victim of the scandal, was bankrupted in 2007 when he lost his case in the civil courts representing himself against the Post Office.
The civil judgment against him, however, still stands.
“It’s the oddest thing in the world to be an OBE, fighting for justice, while still having the original case standing against me,” he tells Sky News.
While he has received an interim payment he has not applied to a redress scheme.
“The GLO scheme – that’s there on the table for me to do,” he says, “but I know that they would use my original case, still standing against me, in any form of redress.
“So they would still tell me repeatedly that the court found me to be liable and therefore they only acted on the court’s outcome.”
He agrees with other victims who want the inquiry this week to recommend “taking the bad piece out” of redress schemes.
“The bad piece is the company – Post Office Limited,” he continues, “and the government – they need to be outside.
“When somebody goes to court, even if it’s a case against the Department for Business and Trade (DBT), when they go to court DBT do not decide what the outcome is.
“A judge decides, a third party decides, a right-minded individual a fair individual, that’s what needs to happen.”
Pic: AP
Mr Castleton is also taking legal action against the Post Office and Fujitsu – the first individual victim to sue the organisations for compensation and “vindication” in court.
“I want to hear why it happened, to hear what I believe to be the truth, to hear what they believe to be the truth and let the judge decide.”
Neil Hudgell, a lawyer for victims, said he expects the first inquiry report this week may be “really rather damning” of the redress claim process describing “inconsistencies”, “bureaucracy” and “delays”.
“The over-lawyeringness of it,” he adds, “the minute analysis, micro-analysis of detail, the inability to give people fully the benefit of doubt.
“All those things I think are going to be part and parcel of what Sir Wynn says about compensation.
“And we would hope, not going to say expect because history’s not great, we would hope it’s a springboard to an acceleration, a meaningful acceleration of that process.”
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June: Post Office knew about faulty IT system
A Department for Business and Trade spokesperson said they were “grateful” for the inquiry’s work describing “the immeasurable suffering” victims endured.
Their statement continued: “This government has quadrupled the total amount paid to affected postmasters to provide them with full and fair redress, with more than £1bn having now been paid to thousands of claimants.
“We will also continue to work with the Post Office, who have already written to over 24,000 postmasters, to ensure that everyone who may be eligible for redress is given the opportunity to apply for it.”
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