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Recruitment company under fire for 'aggressive' avoidance

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1st Jun 2015
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Tax campaigners have asked the government to restrict tax breaks for companies and make directors in limited liability companies responsible for tax owed after a large recruitment company was accused of promoting an “aggressive” tax avoidance scheme.

Anderson Group, which says it’s the “UK’s leading provider of support services to the recruitment and contracting sector”, is promoting an aggressive tax avoidance scheme, which experts are calling abusive, the BBC reported.

The scheme works by exploiting the government’s Employment Allowance. It could deprive the Treasury of tens of millions of pounds of national insurance payments.

The allowance enables companies to claim £2,000 off their annual employers' National Insurance bill and was meant to encourage small businesses to take on more workers.

The BBC secretly recorded Anderson Group's sales manager, Ian Moran, promoting the tax avoidance scheme to a recruitment agency.

The agency he was pitching to employs 300 workers, many of whom work in low paid jobs in warehouses or as labourers, according to the BBC.

Moran suggested that if the recruitment agency were to set up more than 100 limited companies with a couple of workers in each of them, each company could claim the £2,000 allowance.

Moran said the agency's national insurance bill would fall from £300,000 a year to zero.

In a statement Anderson Group denied that it promoted aggressive tax avoidance schemes. It said the scheme the BBC reported on was offered by one of its clients.

It said the BBC’s article was “factually incorrect and sensationalised”.

HMRC said, “Schemes like this don’t work and anyone thinking of using it should think again. HMRC will pursue users and promoters on behalf of the vast majority of people who play by the rules. Failing to disclose an attempted avoidance scheme is punishable by a fine of up to £1 million.”

Richard Murphy, a tax expert and campaigner for financial reform, blogged that the alleged tax avoidance by Anderson Group highlighted the need to tighten tax rules for limited liability companies.

“[If] limited liability has been used for the purposes of not settling tax liabilities properly due then the liability for that tax should fall on the directors, shareholders and promoters of the scheme in question together with any who might have enjoyed economic benefit as a result of its use (i.e. the end user of the labour in this case), and this liability should be joint and several,” Murphy wrote.

Murray Worthy, tax campaign manager at ActionAid UK, a charity, said the government should review tax breaks for big companies because the “benefits and costs they might bring to the economy are completely unclear”.

Patrick Stevens, tax policy director at the Chartered Institute of Directors, said there have been lots of avoidance schemes in the recruitment and contractor industry and tax laws to counter them.

Replies (15)

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By mabzden
01st Jun 2015 16:53

OMG Aweb!

"Recruitment company under fire for "agressive" avoidance".

Someone needs to learn to spell, or at least use a spellchecker!

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Replying to annie14:
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By sean.cheung
08th Jun 2015 11:26

"aggressive" is the correct

"aggressive" is the correct spelling my friend.

see below link

http://www.how-do-you-spell.com/agressive

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Replying to happystone:
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By mabzden
11th Jun 2015 14:36

Yes we know...

sean.cheung wrote:

"aggressive" is the correct spelling my friend.

see below link

http://www.how-do-you-spell.com/agressive

Aweb corrected their "agressive" error and we've moved on.

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By nogammonsinanundoubledgame
02nd Jun 2015 08:14

Perhaps ...

... they are recruitment consultants to the farming industry?

With kind regards

Clint Westwood

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Francois
By Francois Badenhorst
02nd Jun 2015 08:28

Our humble apologies

To atone for this enormous slight to our honour, I will now punch myself square in the face. 

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By mabzden
02nd Jun 2015 10:38

Thanks Francois

Your* forgiven. But I'm also glad you punched yourself in the face.

(* I've made this grammatical error on purpose to make you feel better.)

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Replying to Cheshire:
Francois
By Francois Badenhorst
02nd Jun 2015 10:56

Thanks!

mabzden wrote:

Your* forgiven. But I'm also glad you punched yourself in the face.

(* I've made this grammatical error on purpose to make you feel better.)

You're a real pal!

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By johnjenkins
02nd Jun 2015 16:27

Once you start

going down the route of making Directors and Shareholders liable for Ltd Co's tax liabilities you might just as well get rid of Limited Companies. The thing to do is use the law and prosecute those that have offended. If they haven't broken the law then they cannot be personally liable. Tax rules do not need to be tightened. All you need is (as was originally intended but not carried out because HMRC couldn't be bothered) that any complex scheme comes before a tribunal before it is put into place not after.

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By ShirleyM
02nd Jun 2015 16:51

I've thought about that, John

I believe they have something similar in the USA where schemes have to be approved before use, but all the scheme promoters would do is submit an idea based on a real situation, and then artificially generate the same situation.

The facts are; some of the avoidance schemes are outright fraud, so why don't they just throw the scheme promoters in the slammer and make them repay the lost tax, along with their generous commission? If you organised a crime for a client you would be jailed ... what's the difference?

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By hiu612
03rd Jun 2015 11:47

Sounds like a lot of hot air


Based on the sketchy facts the BBC gathered it is hard to see why the scheme would work given the apparent connection between the companies and the rules that only allow on Ers Allowance per 'group'. So no need for tightening of rules if the existing ones already preclude the perceived advantage. As to the need to impose a personal liability on directors, surely this already exists. If the company is solvent, it needs to pay its tax debts. If insolvent then it is forced by its creditors into liquidation or administration. Within those processes the insolvency practitioner joins the dots, finding 150 connected companies with a couple of employees each, NI liabilities in each company and apparent director misconduct in reaching that position. IP at that point pursues the directors under the legislation we already have. Its knee jerk legislation to try and attack specific situations that results in sloppily worded and unnecessary tax law which more often than not impacts on the 999 untargeted 'innocents' as well as the 1 'guilty' party for whom it was intended. Sensationalism indeed.

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By jonstewart
03rd Jun 2015 12:08

Payroll?

Are the facts not broadly the same as when HMRC were offering an incentive to file end of year payroll online?  I think at the time certain individuals set-up numerous payroll schemes in order to claim the incentive, even though very little (if anything) went through the payroll. 

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By pete_t
03rd Jun 2015 12:11

It's not just the Agencies playing games.

I have a 'client' who is the son of a work colleague who I have been helping out with his tax. The lad - who is now only 24 years of age - with no experience of business - is essentially a labourer working for  small local firm (he was originally directly employed).

About 4 years ago he was told by his employer that he needed to become a sub-contractor and would be taxed under the CIS scheme. About 2 years ago his boss received  advice from a local 'accountancy firm' and he then insisted that all his 'employees' (sub-contractors) should each form a limited company and the company would be paid for their work. The client had no option and he was forced to agree if he wanted to continue working - which he did.

He is now in the position whereby his employment rights have been taken away from him.  He has no rights to holiday pay, statutory notice, sickness benefit, severance pay or redundancy. He can turn up for work only to be told that he is not needed that day and has no recourse on his 'employer'. He has no understanding of tax law, company law and employment law - it is very sad in addition to being very wrong - such is the world that we live in.

As an aside - he, and his half a dozen workmates, now account for 7 of David Cameron's "new companies" which form part of the "record" period of economic growth statistics. Entrepreneurs ?? - I don't think so.

The Employment Allowance is a God send to this lad - at least he stands to get something out of the scandalous and farcical situation that he finds himself in.

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By ShirleyM
03rd Jun 2015 14:18

@Pete_t

We are seeing similar, where contractors and companies are now refusing to deal with umbrella companies and they demand that workers (eg. labourers, road workers and the like) operate through a ltd co.

It's a total farce, and the worker has a choice of complying with the demands, or not having any work at all. It's extra business for accountants, but what about the workers who 'pay' the cost caused by the contractors transferring their liabilities onto the lowest paid person?

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By johnjenkins
03rd Jun 2015 17:34

They can

always register for flat rate vat and make a few bob.

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By the_Poacher
07th Jun 2015 07:33

Better odds coming?
The latest cuts announced for HMRC increase your chances of getting away with this sort of scam. There's only so much far that can be trimmed and any attempt to get through on the phone or get a prompt repayment or response to a letter indicates that this is a department in crisis.

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