UK government could lose £20m due to ‘aggressive’ tax avoidance scheme

By on 29/05/2015
Photo: iStock

The UK tax authority could lose out on £20m contributions because of a “highly aggressive” and “abusive” tax avoidance scheme uncovered by the BBC news agency.

Anderson Group, one of the recruitment industry’s most high-profile companies, is promoting the scheme, which works by exploiting the government’s Employment Allowance introduced last year.

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.

Anderson Group told the BBC that all of its services are fully compliant with UK tax laws, adding that it is “totally incorrect” to say that Anderson Group is promoting the scheme and that it is a product being offered by one of its clients.

Secret recording

However, 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.

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 then claim the £2,000 allowance.

By Moran’s calculations the agency’s National Insurance bill would then fall from £300,000 a year to zero.

Moran suggested the recruitment agency, which has no intention of using the scheme, might like to spend the £300,000 on Bentleys and ski chalets.

He told the recruitment agency that 10,000 workers were now being employed through these companies, and the goal was to increase that to 20,000.

If National Insurance was avoided on every worker, Her Majesty’s Revenue and Customs (HMRC) – the UK tax authority – could lose £20m in National Insurance contributions.

Misuse of scheme

At the meeting, Moran admitted that the Employment Allowance was being misused: ”It wasn’t intended to be used exactly like this,” he said.

”Let’s be straight, but they set the rules, we’ll build a product.”

Robin Williamson, head of the low incomes tax reform group at the Chartered Institute of Taxation, called the scheme “highly aggressive” and “abusive”.

He said it drives a coach and horse through the legislation: ”To use the colloquial – they are having a laugh.”

The Employment Allowance legislation makes it clear that artificially created companies cannot claim the allowance.

The BBC found on the Companies House website more than two thousand limited companies created by those behind the tax avoidance scheme.

Jennie Granger, head of compliance at HMRC told the BBC: “Schemes like this don’t work and anyone thinking of using it should think again.

“Failing to disclose an attempted avoidance scheme is punishable by a fine of up to £1m.”

About Winnie Agbonlahor

Winnie is news editor of Global Government Forum. She previously reported for Civil Service World – the trade magazine for senior UK government officials. Originally from Germany, Winnie first came to the UK in 2006 to study a BA in Journalism & Russian at the University of Sheffield. She is bilingual in English and German, and, after spending an academic year abroad in Russia and reporting for the Moscow Times, Winnie also speaks Russian fluently.

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