HM Revenue & Customs has been asked by an influential Labour MP to launch an urgent investigation into an aggressive tax avoidance scheme used by recruitment agencies that is depriving the taxpayer of “hundreds of millions” of pounds.

Frank Field, the chairman of the House of Commons work and pensions select committee, also asked that Jon Thompson, chief executive and permanent secretary to HMRC, looks into recouping any revenues lost after details of the scheme were revealed by the Guardian on Tuesday.

Revealed: temp agencies' avoidance scheme costs taxpayers 'hundreds of millions' Read more

In his letter to HMRC, Field said: “Given the potential scale of this racket, and the size of the sums that taxpayers otherwise have to pay, might you please consider launching an urgent investigation into recruitment agencies’ tax arrangements? Might you also act swiftly to recoup all of the monies that may have been squirrelled away by those agencies found to have been avoiding tax in this way?”

The Labour MP has also tabled a written parliamentary question to Philip Hammond asking about an HMRC investigation. Field asked the chancellor: “Having a Britain that works for all of us, as the prime minister wishes, means that HMRC prevents tax being optional. We need an inquiry, and for it to be followed up with firm action, to bring an end to double standards on tax.”

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

Facebook Twitter Pinterest Frank Field: ‘We need an inquiry, to bring an end to double standards on tax.’ Photograph: PA

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.

Jolyon Maugham QC, a tax barrister at Devereux Chambers,said on Tuesday that “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.”



Field’s move came as Labour and trade unions also called on the government to take action. Rebecca Long-Bailey, the shadow chief secretary to the Treasury, said such agencies were “exploiting loopholes in the law in their pursuit of profit”.

Iain Wright MP, the chairman of the business select committee which is conducting an inquiry into the future world of work and rights of workers, added: “There are two questions with temporary employment agencies. First, is the flexibility used in agencies’ business models when a lot of the workers they employ should be on full time contracts? And secondly, are they just conning a whole range of people, whether that is the individual or the general taxpayer?

“Tax receipts are going down because these companies are distorting proper tax rules with disingenuous arguments, as well as the issues we saw with the likes of Sports Direct, where agencies which employed temporary workers on behalf of the companies charge fees to workers for insurance or for payment cards that allow them to receive their wages. There is a larger question about where agencies go from here.

“These are the sorts of questions our inquiry is interested in tackling.”