Something to be aware of when choosing a recruitment agency...

HMRC faced claims this year over tax avoidance after allegations that the UK’s £22bn recruitment industry is riddled with a multi-million-pound “avoidance” scheme that allows recruitment agencies to undercut competitors, exploit millions of workers and cheat the taxpayer out of large sums of money.

In the last year, Baxter Personnel have encountered a large number of recruitment agencies trying to undercut their rates. In terms of the costing, we have come across our clients being offered disturbingly low rates on more than one occasion meaning one of two things… either the agency is making a loss or it is running a tax avoidance scheme designed to reduce costs and increase profits.  In this case, if the price looks too good to be true – it generally is.

To payroll an employee through PAYE on a £7.00 pay rate costs an Employer £8.92. This is made up of Pay, NI and Holiday accrual. None of these component parts are avoidable – for anyone. Suspicion should be aroused when a company claims to charge out a £7.00 pay rate for £8.44  i.e a £0.48 per hour loss to the employer under PAYE.

The Sunday Telegraph reported that it had seen payslips that proved many recruitment agencies across the country are utilising expenses schemes that have been outlawed and that allows them to bank tax relief, which they are claiming, from HMRC but then failing to pass on the correct amount to the workers.  In many cases, the paper discovered that workers were only receiving a fraction of the tax relief that they would have obtained, if they had gone to the tax authorities themselves.

Unfortunately, the recruitment industry is rife with Umbrella Companies offering ‘outlawed’ payroll and travel and subsistence schemes.  It’s easy to see the appeal to recruitment agencies in employing a scheme which involves reducing charge rates whilst increasing margins. 

Andrew Harrow, Managing Director of Baxter Personnel said “We carried out a 6 month feasibility study into Baxter Personnel adopting this kind of scheme at the end of 2013. The reality of the situation however is that HMRC have outlawed this practice and this decision has been upheld many times through the courts. In any case, taking more of a holistic view of things, Baxter Personnel is better off that its name stays well clear of headlines containing “tax avoidance” and  “worker exploitation” etc. even if this means running the business at a higher cost.”

Recruitment company Reed were one of the first companies to be caught out with this in April 2014 following a Tax Tribunal ruling that Reed faced a liability of up to £158m after losing its umbrella workers’ expenses claim against HMRC. Between 1998 and 2006, Reed failed to pay UK payroll taxes on these temps' travel expenses after arranging a payment scheme in which it paid travel reimbursements separately from their salaries.  

HMRC could take action against other companies that operated or operate similar arrangements. Such action could lead to HMRC making an assessment for unpaid tax and national insurance.

If you have any questions relating to this article or would like to find out more about Baxter Personnel and the recruitment services we offer please contact one of our consultants on 01325 382626 or alternatively you can visit our website at www.baxterpersonnel.co.uk for more information.

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