Recruitment Industry faces tax investigations for tax avoidance

The Recruitment Industry faces tax avoidance investigations from HMRC, following allegations that recruitment agencies run multi-million pound ‘tax avoidance’ schemes, reports The Telegraph.

HM Revenue and Customs is said to be focusing on recruitment agencies that use ‘non-compliant expenses schemes for temporaryRecruitment Industry faces tax investigations for tax avoidance workers, which cost the taxpayer an estimated £390m a year and risk exploiting millions of temps’, reports Louise Peacock for The Telegraph on 22 July 2012.

Speaking to The Telegraph about recruitment tax avoidance schemes, a spokesperson for HMRC, said:

“These kinds of arrangements do not comply with tax rules and may result in workers not being paid the minimum wage. Employers who use these kinds of arrangements risk penalties from HMRC and the loss of their gangmasters license.

“Most employers comply with their legal obligations but those that don’t are seeking to undercut genuine gangmasters, exploit their workers and also cheat the exchequer.”

The tax avoidance scheme in question, used by recruitment agencies to benefit from temporary workers’ wages, is named the ‘travel and subsistence’ expenses scheme.

Recruiters avoid tax using the ‘travel and subsistence’ expenses scheme by mapping out a percentage of temporary workers’ weekly wages as expenses, on which they then claim tax relief on and bank the majority of money received as profit, rather than passing what is owed to the temporary employee.

For example, payslip evidence reveals that a temporary worker was given only 12 percent of the money claimed tax reliefs, instead of the 70 percent they should have received.

Recruitment agencies are reported to be pocketing an average of 88 percent of the tax relief from a temporary employee’s wage, rather than the 30 percent that they should be entitled to, according to payslip evidence seen by The Telegraph.

Despite HMRC publishing guidance in 2011, which states that such tax avoidance schemes are non-compliant with tax law, Andy Hogarth, chief executive of Staffline, admits that the ‘travel and subsistence’ tax avoidance scheme is still ‘rife’ in the recruitment industry.

Andy Hogarth on recruitment tax avoidance schemes“Recruiters do this to undercut all the legitimate operators. HMRC cannot police it and there’s huge confusion over what’s right and wrong,” said Hogarth.

From 1.3m of the UK’s temporary workers, Hogarth claims that around 250,000 (nearly one fifth) of temporary worker wages are trapped in the tax avoidance scheme; estimating the loss to the revenue at £390m.

Following tax avoidance revelations, the Gangmasters’ Licensing Authority and the Recruitment and Employment Confederation have called for clearer legislation over the rules on legitimate and illegitimate tax planning recruitment schemes. A demand which HMRC has responded that current rules are clear and the government will “come down hard on anyone abusing the system”.

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