Labour and trade unions have called on the government to take action after a Guardian investigation found that an aggressive tax avoidance scheme used by temporary recruitment agencies is depriving the taxpayer of “hundreds of millions” of pounds a year.

Agencies have made large sums by using “contrived” financial arrangements to slash their employer’s national insurance bills and by exploiting VAT rules originally designed to benefit very small businesses.

Guardian undercover footage shows Patrick Griffin of Premier Payco, a provider of the schemes, outlining how workers’ contracts are 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 the companies is ostensibly run by overseas directors.

Rebecca Long-Bailey, the shadow chief secretary to the Treasury, said such agencies were “exploiting loopholes in the law in their pursuit of profit”.

“Not only do these kind of tax avoidance schemes place workers employed by agencies involved in an unacceptably precarious position, not knowing what will happen to their jobs should the company be investigated, they deny the exchequer significant revenue,” she said.

Facebook Twitter Pinterest Rebecca Long-Bailey. Photograph: Christopher Thomond/The Guardian

The government had “failed to tackle tax avoidance head on” and had reduced the ability of HMRC officials to do so, Long-Bailey said. “Labour will shut down these aggressive schemes through our tax transparency and enforcement programme to get a fair deal for workers and for the Treasury.”

The construction union Ucatt said it hoped the Guardian investigation would prompt the government to take action. Its acting general secretary, Brian Rye, said: “Maybe with this latest example of what we consider criminal behaviour, HMRC will finally allocate the resources to clean up the dodgy world of employment agencies and put a stop to the daylight robbery carried out against the British taxpayer and the British construction worker.”

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.

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Asked about the ethics of profiting at the expense of the taxpayer, the Guardian footage shows Griffin saying: “All I can do is explain to you what our product does. It’s right for some businesses and it’s wrong for other businesses. I’ve sat where you’re sat and you make your own judgments and decisions on that. All I can do is present to you the case that what we’re doing is effective, it works and it complies with all of the laws as they’re currently written.”



Griffin said his company has a QC’s opinion stating that the Premier Payco scheme legally helps clients avoid taxes, because it is based on “genuine” commercial relationships between the interacting companies and had not been created specifically to avoid tax.



However, not all tax lawyers agree. Having been shown Premier Payco marketing documents and viewed sections of the Guardian’s undercover footage, Jolyon Maugham QC, a tax barrister at Devereux Chambers, said: “It’s a not particularly sophisticated piece of failed tax avoidance because, having read through the document, I have no real doubt that the scheme doesn’t work.

“So what it does, it piles up tax liabilities in a [tiny] shell company and it does so in a way that the organisers of the scheme know that those tax liabilities will never be met. So that shell company will fold if HMRC ever catches up with it and HMRC – and indeed by extension the rest of us – will be kept out of the tax that we need to fund schools and hospitals, and pensions and social care.”

Maugham said the salesman was “doing a soft-shoe shuffle on what is the critical question of law, which is whether one of the main purposes of these arrangements is to obtain a tax saving. As I listen to [Griffin’s] answer and as I read the documents you’ve been provided with, it’s abundantly clear to me that this is one of the main purposes.

“It is perfectly reasonable to think 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,” he said.

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The sale of these schemes is being ramped up despite concern about their efficacy, the Guardian understands.

The HMRC notice followed a BBC report on similar arrangements being marketed by a supplier called Anderson Group.

In the notice, HMRC said: “Attempted avoidance schemes like this, which seek to use artificial and contrived arrangements to get an unintended advantage, do not work. HMRC’s firm view is that such schemes are notifiable under the disclosure of tax avoidance schemes rules. Anyone who comes within the meaning of a promoter for such a scheme who has not notified it under the Dotas rules could be liable for a fine of up to £1m.”

The employment agencies identified by the Guardian as using these schemes supply temporary labour to some of the UK’s best-known brands, as well as the public sector.



Premier Payco, which claims to have 6,000 workers enrolled on its system, cites recruitment group MTrec as one of its clients. MTrec supplies workers to the NHS and a series of industrial clients.

HRGO, an agency that uses a similar product, has a major contract with support services group G4S and says it supplies workers to the NHS as well as the prison service.

Facebook Twitter Pinterest A number of the companies identified by the Guardian as using avoidance schemes supply workers to the NHS. Photograph: Peter Byrne/PA

Another employment agency called Jark, which also places its workers with the NHS as well as FTSE 100 companies such as Shell and Burberry, is understood to be using an employment allowance product supplied by financial services group Contrella.

Because each mini employment company created in these schemes employs only two or three workers, the taxes it has to pay on its wage bill are small. That small tax bill can be effectively eradicated by each mini company claiming a £3,000 government subsidy called the employment allowance, which can only be claimed once by a company and was designed to help very small businesses create more jobs or increase wages.

The mini employment companies can also generate an additional windfall by charging VAT at 20% but paying it back to the government at about 12%, exploiting arrangements designed to free very small businesses with revenues of less than £150,000 a year from red tape.

Marketing materials produced by Premier Payco and seen by the Guardian claim the company has 6,000 temporary workers enrolled in its scheme. Along with similar products supplied by providers such as Contrella and Anderson Group, one employment agency insider calculates that the exchequer is losing about £100m a year from the schemes alone.

A spokesman for Premier Payco said: “We are confident that we operate within all relevant guidance and legislation, and we constantly review the regulatory landscape to ensure our ongoing compliance by reference to leading counsel, tax advisers and employment specialists.”

Anderson Group said that it had taken QCs’ advice on the services to ensure the arrangements were legal and compliant with any relevant legislation, and that it had offered schemes on behalf of a client. Contrella did not respond to invitations to comment.

Among the agencies using this type of arrangement, HRGO and Jark said they took compliance seriously and had taken legal advice before signing up with any suppliers of this type of scheme. MTrec did not respond to invitations to comment.

Burberry and G4S said they had not benefited from any of the tax arrangements of their employment agencies. Shell declined to comment.