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
Donald Trump’s trade war has expanded to cover the world, with 25% tariffs on all steel and aluminium imports to the US in effect from today, affecting UK products worth hundreds of millions of pounds.
The duties were announced in mid-February as stock market investors cheered President Trump‘s ‘America first’ agenda which saw only Mexico, Canada and China come under initial pressure.
While two rounds of tariffs on China have been enacted, 25% duties on some Canadian and most Mexican cross-border trade have been withdrawn until 2 April at the earliest.
The tariffs beginning today are designed to protect US manufacturing and bolster jobs by making foreign-made products less attractive.
Money latest: Are Lifetime ISAs fi for purpose?
They threaten to make the cost of things like cars to soft drink cans – and therefore some drinks – more expensive.
Canada is the biggest exporter of both steel and aluminium to America. However, the White House on Tuesday rowed back on a threat to double the country’s tariff to 50%.
The American tariffs are a threat to UK steel exports worth north of £350m annually – with the bulk of that coming from stainless steel.
The business secretary Jonathan Reynolds said on Wednesday morning that while he was disappointed, there would be no immediate retaliation by the UK government as negotiations continue over a wider trade deal with the US.
“I will continue to engage closely and productively with the US to press the case for UK business interests,” he said.
Please use Chrome browser for a more accessible video player
Feb: Prices to rise for planes, trains and automobiles
The EU, however, vowed to retaliate with €26bn of counter tariffs on US goods starting from 1 April,
European Commission president Ursula von der Leyen said she remained open to “meaningful dialogue” with the US.
During Mr Trump’s first term, the bloc countered tariffs with charges on products such as US-made bourbon and jeans which were later suspended.
These duties would be re-imposed from April, the Commission said, with further products added to match the value of the US tariff hit.
Industry body UK Steel said it was a trading partner with the US, not a threat, and urged a government response.
Any fall in demand among US customers will leave producers scrambling for new markets, though some could be directed to domestic projects within the UK.
That steel could prove attractive as China, the world’s largest producer of steel, has threatened to limit its exports in response to the Trump tariffs.
Read more:
The man Canada is sending to battle Trump
What’s gone wrong at Musk’s Tesla?
Please use Chrome browser for a more accessible video player
Carney: ‘Canada will win’
President Trump is under growing pressure to row back, particularly in his planned battle with nearest neighbours Mexico and Canada.
Markets have turned on the tariff regime, with jitters about the effects of higher import prices souring the US economy first being seen through the currency and bond markets.
The dollar has lost around five cents against both the pound and a resurgent euro alone in the past few weeks.
Stock markets have joined in, with the combined market value of the broad S&P 500’s constituent companies down by more than $4trn on the peak seen just last month.
The big fear is that the protectionism will push the world’s largest economy into recession – a scenario Mr Trump did not deny was possible during a weekend interview.
👉 Follow Trump 100 on your podcast app 👈
US firms, already also grappling the complexities associated with an expanding tariff regime, are also letting it be known that they expect damage to their own businesses.
Delta Airlines lowered its first quarter growth forecast on the back of the turmoil this week while US firms are increasingly facing product boycotts.
Travel bodies have also reported a big drop in the number of Canadians crossing the US border, with road trips down by almost a quarter last month compared to February 2023 according to Statistics Canada.
Business
Small acts of defiance in Canada raise question of what country can do against Trump’s tariff trade war
In Miche cafe and bar in British Columbia’s capital, Victoria, owner Allan Sinclair is turning around specific alcohol bottles on the top shelf to hide the labels from public view.
He picks up a bottle of Jack Daniels.
“This is from Tennessee and they supported Trump so we can’t have that,” he says.
How Trump’s tariffs could cost UK consumers
Allan Sinclair, owner of Miche cafe and bar in British Columbia’s capital, Victoria
Bottles of American liquor were being turned around in the Canadian store
A bottle of Wayne Gretzky’s cream liquor is nearly finished.
“Once it’s gone, I’m going to get rid of it,” says Allan. “He’s shown he doesn’t respect our country anymore.”
Gretzky, once a Canadian ice hockey hero, has alienated many here with his steadfast support of the American president.
Allan also sells “Canadianos,” which he says, wryly, are stronger than Americanos.
They are quiet but considered acts of defiance in the face of a trade war started by the United States.
“It is a small protest in the form of a coffee,” he says. “What we can do is hope that they don’t follow up with all of this madness.”
Tuesday began with Donald Trump announcing a 50% tariff on aluminium and steel coming from Canada. Just hours later, that was revised back down to 25%.
There is a grinding, on-off, tit-for-tat nature to these economic punishments.
The British Columbia premier David Eby retaliated to the Trump tariffs by prohibiting the sale of American-manufactured alcohol in his province.
The Miche cafe and bar doesn’t sell Americanos
‘Buy Canadian Instead’
BC Liquor Store is just steps away from the premier’s office in Victoria.
On the shelves where Kentucky bourbon would usually be there are signs saying: “Buy Canadian Instead.”
Dozens of bottles of California and Oregon wine are wrapped tightly with cellophane.
But the threats from the Trump administration don’t end with tariffs.
The president has stated repeatedly that he’s keen to make Canada the 51st state. Even referring to Prime Minister Justin Trudeau as “governor”.
British Columbia premier David Eby speaking to Sky News
Premier Eby tells Sky News: “These are deeply unnerving statements for the president to be making, especially in the context of clearly expansionist policies related to Greenland and the Panama Canal.
“What we get continually about the president is to take him seriously, but not literally.
“I would love to have that kind of luxury… the danger, I think, is not taking him literally and seriously.”
‘I’m trying to buy anything but American‘
On the ferry which connects Vancouver Island with the mainland, tariff fatigue is setting in.
Passenger Nancy, a government worker, says she thinks Donald Trump is intent on causing mayhem. “He’s a menace, he’s just creating chaos where it doesn’t need to be.”
Her colleague Laura says the silver lining is that the tariffs have galvanised Canadians together.
Laura, a government worker, says the tariffs have brought Canadians together
“People feel hurt and angry,” she says. “We are trying to buy more Canadian products and travel anywhere other than the United States. I had a trip booked to Las Vegas and we’ve cancelled that. When I go to the grocery store, I look for the Canadian maple leaf that a lot of grocery stores have put on the shelves. I’m trying to buy anything but American.”
Richard thinks Donald Trump’s end game is to weaken the Canadian economy.
“I think Trump had an agenda from the beginning, without a doubt. I think he wanted to cause a collapse of the Canadian economy so it would make it easier for him and his colleagues to buy up whatever they wanted, if not to make us a 51st state – it had nothing to do with Fentanyl, that was just a ruse.”
Trump’s ‘fiction’ Fentanyl claims
He’s referencing the Trump administration’s repeated claims that Fentanyl, a devastating opioid that has ravaged parts of both America and Canada, is flooding over the Canadian border into the US.
It’s the reason, they say, for starting this trade war.
One reason Mr Trump gave for initiating the trade war was the alleged flow of fentanyl over the border
Dr M-J Milloy, director of research at British Columbia Centre on Substance Use, says that this simply isn’t true.
“There is no one who knows anything about drug markets in North America who would agree with the statement that Canada is a substantial part of the problem in the United States. It is a fiction.”
Dr M-J Milloy, director of research at British Columbia Centre on Substance Use
“No question that Fentanyl has devastated the United States. Fentanyl is devastating Canada. And so I think in that way, it might be a potent way for Mr Trump to whip up enthusiasm and to justify this aggression,” he adds.
Whatever the reason – invented or otherwise – for this trade war, it’s making an enemy of this ally.
Please use Chrome browser for a more accessible video player
Day 52: Tesla, tariffs and a step closer to truce
The question is, what power does Canada really have in the face of its much bigger, far wealthier neighbour?
A “shattering blow” has been dealt to farmers with the sudden pausing for new applications for environmental payments, according to the National Farmers’ Union.
The NFU says it was given just 30 minutes notice by the government that applications for the Sustainable Farming Incentive (SFI) were to close on Tuesday.
The post-Brexit scheme, launched in 2022, pays farmers and land managers to take up practices that improve productivity and protect the environment and climate.
Politics latest: UK set to be hit by Trump’s steel tariffs
Protesters disrupted Defra Secretary Steve Reed’s speech at the NFU conference. Pic: PA
There were more than 100 options for farmers to choose from, including the management of hedgerows, organic farming development and providing habitat for wildlife.
The government says the budget for SFI has now been reached, adding that a “record” 50,000 farm businesses and more than half of all farmed land is now managed under the schemes.
Both Conservatives and Liberal Democrat politicians have criticised the move and the lack of any prior warning.
But NFU president Tom Bradshaw said the decision showed “how little” the Department for Environment, Food And Rural Affairs (Defra) understood the industry.
Please use Chrome browser for a more accessible video player
Fourth farmers’ protest through London
‘Growing disregard for agriculture within Defra’
“This is another shattering blow to English farms, delivered yet again with no warning, no understanding of the industry and a complete lack of compassion or care,” Mr Bradshaw said.
“Today’s terrible news was delivered with only 30 minutes warning to us before ministers briefed the press, leaving us unable to inform our members.
“There has been no consultation, no communication; there has been a total lack of the ‘partnership and co-design’ Defra loves to talk about. It is another example of the growing disregard for agriculture within the department.”
The government has said “every penny” in all existing SFI agreements will be paid to farmers, and outstanding eligible applications that have been submitted will also be taken forward.
It said details of a new SFI scheme will be announced following the Spending Review.
Read more:
What’s the beef with farmers’ inheritance tax?
Reed apologises to farmers for tax ‘shock’
The ‘cruellest betrayal so far’
It was only last week that thousands of farmers were protesting outside Downing Street at the inheritance tax policy that’s angered so many in agriculture.
But one group representing farmers said on Tuesday the SFI decision is the “cruellest betrayal so far”.
The scheme was introduced under the Conservatives post-Brexit, to encourage sustainable farming.
It took years to develop – and was seen as world leading in a way of ensuring farming was both productive for the sector and protective of the environment.
Although a new scheme after the spending review is promised, many farmers will be left wondering whether it’ll be as comprehensive.
The National Farmers’ Union was preparing on Wednesday to release a report saying that farming confidence in England and Wales is at its lowest level ever.
It’s described Tuesday’s news as a “bleak irony”.
In a statement, minister for food security and rural affairs Daniel Zeichner said: “This government is proud to have set the biggest budget for sustainable food produce in history, to boost growth in rural communities and all across the UK, under our plan for change.
“More farmers are now in schemes and more money is being spent through them than ever before. That is true today and will remain true tomorrow.
“We have now successfully allocated the SFI24 budget as promised.”
👉 Listen to Sky News Daily on your podcast app 👈
The government claims the last administration left the scheme uncapped – and they had to put a limit on to stop it running over budget.
‘Absolutely bonkers’
Olly Harrison, an arable farmer on Merseyside who organised the latest farming protest in London earlier this month, said the decision showed farmers were being “attacked from every single angle”.
“It’s just absolutely bonkers. The scheme worked. It was to replace what we had when we were in Europe [the EU] and a lot of farms embraced it, they were doing real good with it.”
“Why have we got people who don’t understand and don’t understand the environment in power?”
Edward Morello, the Liberal Democrat MP for West Dorset, told Sky News the decision will “alarm farmers across the UK” – and called for the government to “start listening and responding” to the agricultural community.
Tim Farron, the MP for Westmorland and Lonsdale, said the decision was made with “no warning”.
Conservative shadow farming minister Robbie Moore said the change was “absolutely scandalous”.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports11 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway