Labour MP calls for urgent investigation into tax avoidance scheme

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Revealed: how employment agencies avoid tax

HM Revenue & Customs has been asked by an influential Labour MP to launch an urgent investigation into an aggressive tax avoidance scheme used by recruitment agencies that is depriving the taxpayer of “hundreds of millions” of pounds.

Frank Field, the chairman of the House of Commons work and pensions select committee, also asked that Jon Thompson, chief executive and permanent secretary to HMRC, looks into recouping any revenues lost after details of the scheme were revealed by the Guardian on Tuesday.

In his letter to HMRC, Field said: “Given the potential scale of this racket, and the size of the sums that taxpayers otherwise have to pay, might you please consider launching an urgent investigation into recruitment agencies’ tax arrangements? Might you also act swiftly to recoup all of the monies that may have been squirrelled away by those agencies found to have been avoiding tax in this way?”

The Labour MP has also tabled a written parliamentary question to Philip Hammond asking about an HMRC investigation. Field asked the chancellor: “Having a Britain that works for all of us, as the prime minister wishes, means that HMRC prevents tax being optional. We need an inquiry, and for it to be followed up with firm action, to bring an end to double standards on tax.”

Guardian undercover footage shows Patrick Griffin of Premier Payco, a provider of the schemes, outlining how workers’ contracts are being transferred from a single employment agency into a web of thousands of tiny companies to benefit from an accumulation of small tax breaks, and how each of these tiny companies is ostensibly run by overseas directors.

Frank Field: ‘We need an inquiry, to bring an end to double standards on tax.’ Photograph: PA

Last year, HMRC advised anybody using such a scheme to notify it to “avoid the costs of litigation and minimise any interest and penalties due on underpaid national insurance”.

However, despite that warning, the Guardian understands that there has been a spike in the number of firms marketing similar schemes since April, when the government closed down a different tax avoidance scheme widely used by the employment agency sector.

Jolyon Maugham QC, a tax barrister at Devereux Chambers,said on Tuesday that “the loss to the exchequer of this sort of abuse runs into the hundreds of millions, if not billions, of NICs [national insurance contributions], and prospectively VAT.”
Field’s move came as Labour and trade unions also called on the government to take action. Rebecca Long-Bailey, the shadow chief secretary to the Treasury, said such agencies were “exploiting loopholes in the law in their pursuit of profit”.