Hays, Capita, Petrofac. These are some of the most well-known companies in the UK recruitment industry. However, a recent investigation by Sky News has uncovered their involvement in large-scale tax avoidance schemes that affected workers placed in various jobs, including government roles in Whitehall. Many of these workers, such as agency workers and contractors, were paid through third-party umbrella companies that operated tax avoidance schemes. These schemes involved paying workers loans instead of salaries to evade income tax. While recruiters often recommended these umbrella companies, there is no implication that they were aware of the tax avoidance schemes being used. Nonetheless, the repercussions of these schemes have been devastating for thousands of workers who now face significant tax demands from HMRC. The UK government is now taking steps to hold recruiters accountable for the tax collected by umbrella agencies on behalf of the workers they supply. This move comes after HMRC successfully challenged tax avoidance schemes in court, leading to workers being asked to pay the missing tax. The impact of these tax demands has been severe, with some individuals facing six-figure bills. This has pushed many to the brink of bankruptcy and has even been linked to tragic cases of suicide. One such case is that of Manuel Bernal, who unknowingly became involved in a tax avoidance scheme while working as a piping supervisor through Atlantic Resourcing, Petrofac’s recruitment arm. Despite assurances that everything was above board, he later found himself facing a hefty tax bill from HMRC. The use of umbrella companies and tax avoidance schemes became widespread in the early 2000s as workers sought to navigate changing regulations. While tax avoidance is technically legal, the exploitation of loopholes in this manner has had devastating consequences for many workers. Petrofac, one of the companies implicated in these schemes, has since ceased using umbrella agencies following an internal review. However, the fallout from these schemes continues to impact thousands of workers who now find themselves grappling with unexpected tax liabilities. Major UK recruitment agencies involved in tax avoidance schemes have come under fire after workers were hit with hefty demands from HMRC. Some agencies encouraged workers to declare themselves as self-employed, while still paying them through PAYE. However, tax avoidance companies emerged in the market, keeping deductions rather than passing them on to the tax authorities. This led to a significant loss in tax revenue, prompting HMRC to pursue individuals for repayment instead of the companies. The schemes were labeled disguised remuneration, and the loan charge was introduced by former Chancellor George Osborne in 2016 to calculate tax on up to 20 years of income as if earned in one financial year. This caused severe financial strain for many affected individuals. Despite the crackdown on such schemes, new tax avoidance promoters continue to enter the market, with estimates suggesting there could be dozens of non-compliant umbrella companies involved. The government is now aiming to hold recruitment companies accountable for PAYE, rather than umbrella companies, as part of efforts to clean up the industry. However, those already impacted by these schemes have received little relief. While the government has initiated an independent review into the loan charge, focusing on helping individuals settle, it has not addressed the historical role of promoters and recruitment agencies in the issue. This has left affected individuals feeling abandoned, especially those who were working for the government itself. Stories of individuals like Peter, who attempted suicide due to the overwhelming demands from HMRC, highlight the devastating impact of these tax avoidance schemes. Recruitment agencies like Capita, which recommended umbrella arrangements to workers, are also under scrutiny for their role in promoting such schemes. The government’s reforms and crackdown on tax avoidance are a step in the right direction, but more needs to be done to address the grievances of those affected by these schemes. UK recruiters implicated in tax avoidance schemes as workers face hefty HMRC demands

Hays, Capita, Petrofac. These are some of Britain’s best known companies and big players in the recruitment industry. 

Now, a Sky News investigation has revealed how, over the course of two decades, some of Britain’s biggest recruitment companies were linked to large-scale tax avoidance when placing workers into jobs, including government roles in Whitehall.

Many of these workers, typically agency workers and contractors, were paid by third-party umbrella companies that promised to take care of taxes but were operating tax avoidance schemes.

They worked by paying workers what were technically loans, instead of a salary. This allowed them to circumvent paying income tax.

Often the umbrellas were recommended by recruiters, although there is no suggestion the recruiters knew these third-parties were operating tax avoidance schemes.

It is the latest revelation in a scandal that has caused untold misery for tens of thousands of people, who signed up with umbrella companies and were enrolled in tax avoidance schemes, thinking they were above board.

Many feel let down by the recruitment agencies who provided information linking them to the umbrella companies. They were not legally responsible for collecting the tax, as they did not run the payroll.

But the government is now strengthening the law to make them accountable for the tax collected by umbrella agencies on behalf of the workers they supply.

Tax avoidance is legal but HMRC has successfully challenged tax avoidance schemes in the courts and workers have subsequently asked to pay the missing tax.

In some cases, the tax demands have been crippling. It’s a campaign that has driven people to the brink of bankruptcy, devastated families and has been linked to 10 suicides.

Manuel’s story

Manuel Bernal did not doubt his working arrangement after taking on a piping supervisor job through Atlantic Resourcing, the recruitment arm of the energy giant Petrofac. In 2006, he was placed on an EDF plant in the Shetlands.

He received a contract between Atlantic Resourcing and an umbrella company, which managed his pay.

Weeks after he started working, he says he was pushed into an arrangement with a different company, which took over the payments. Hundreds of people were working on the site and «everybody on the management side was on that scheme», he said.

Mr Bernal was assured that everything was above board. He did not know that he was in a tax avoidance scheme.

The company was paying him a loan instead of a salary, via a trust, so avoided income tax and National Insurance.

However, HMRC soon caught on and demanded he pay the missing tax for what it now deemed disguised remuneration.

«At the time, I was in two minds [whether] to pay or not to pay… At the time I couldn’t pay. I was short of money because I had cancer and I couldn’t work… I thought, ‘why should they not pay any money?'» said Mr Bernal.

Tax avoidance is the exploitation of legal loopholes to pay less tax. It is legal. It is not the same as tax evasion, which involves not paying or underpaying taxes and is illegal.

The scheme Mr Bernal was in, like other tax avoidance schemes, stretched the boundaries of the law.

Years later, HMRC successfully challenged the lawfulness of loan schemes in the courts. Workers paid the price. Irrespective of how they entered the schemes, they were deemed responsible for their own tax affairs.

In a statement, Petrofac said: «Like any other company, we are not involved in, or responsible for, the administration of taxes for self-employed limited company contractors.»

The company stopped using umbrella agencies in 2016 after an internal review.

Six-figure demands

Manuel got off comparatively lightly. Having only worked at the site for a few months, his bill came in at £4,000, but others are facing six-figure demands. HMRC has pursued around 50,000 people.

Schemes like these proliferated from the early 2000s.

At the time the use of umbrella companies was becoming popular as workers were worried about falling foul of new rules – originally designed by Gordon Brown – that clamped down on contractors operating as limited companies.

Umbrella companies would manage the payroll so that businesses could avoid bringing workers onto their direct payroll. Workers like Manuel were asked to declare themselves as self-employed by others, while still receiving their pay. Some umbrella companies paid PAYE to the exchequer, but there were also tax avoidance companies in the market. These schemes led workers to believe their taxes were being paid, but instead, the deductions were being kept by the schemes rather than passed on to the exchequer. The Treasury, upon discovering the missing tax revenue, sought to recover it from the individuals rather than the companies. This led to the introduction of the loan charge by former chancellor George Osborne in 2016, which calculated tax on up to 20 years of income as if it was earned in one financial year. This caused significant financial distress to those affected. The government is now taking steps to clean up the industry and hold recruitment companies accountable for PAYE, rather than umbrella companies. However, for those already impacted by these schemes, the reforms offer little relief.

Sometimes I consume quite a bit of alcohol.»

HMRC stated that it prioritizes the well-being of taxpayers and has made significant improvements to its support services in recent years.

The government department where Peter was employed has now been restructured into the Department for Business and Trade.

While unable to comment on the previous department’s dealings with Capita, it mentioned that the government is taking action against non-compliant umbrella companies.

For individuals experiencing emotional distress or thoughts of suicide, assistance is available by contacting Samaritans at 116 123 or emailing jo@samaritans.org in the UK. In the US, reach out to the Samaritans branch in your area or call 1 (800) 273-TALK

Workers, including Manuel, were asked to declare themselves as self-employed by others, while their pay distribution continued. Many umbrellas paid PAYE to the exchequer, but tax avoidance companies also emerged in the market. Workers believed their taxes were being paid, but the schemes were actually keeping the deductions instead of remitting them to the exchequer. The Treasury discovered the significant missing tax revenue and aimed to recover it from the individuals rather than the companies.

These schemes were labeled disguised remuneration, and the loan charge was introduced by former chancellor George Osborne in his 2016 budget. The loan charge initially calculated the tax on up to 20 years of income as if it was earned in one financial year (2018/19), causing substantial financial distress. The government is now making efforts to reform the industry, planning to hold recruitment companies accountable for PAYE instead of umbrella companies. However, this provides little relief to those already affected by these schemes.

The government has initiated an independent review into the loan charge, and HMRC has paused its activities until the review concludes, focusing on assisting individuals in reaching settlements. The review will not investigate the past actions of promoters and recruitment agencies, which is disappointing for those impacted by the loan charge, especially as many were employed by the government. «I occasionally consume alcohol, sometimes to excess.»

HMRC emphasized its commitment to the well-being of taxpayers, stating that it has implemented significant enhancements to its support services in recent years.

The government department where Peter was employed has since been restructured into the Department for Business and Trade.

While the department declined to comment on the previous arrangements with Capita, it did mention that the government is taking action against non-compliant umbrella companies.

If you are experiencing emotional distress or suicidal thoughts, you can contact Samaritans at 116 123 or email jo@samaritans.org in the UK. In the US, reach out to the Samaritans branch in your area or call 1 (800) 273-TALK.