Want to reduce your Tax & NI? Get an Umbrella!

[davieG]

BBC

Director of Tax Research UK Richard Murphy says the growth of umbrella companies is "the next big UK tax scandal".

An offshore company employing thousands of teachers is avoiding the payment of millions of pounds in employer's National Insurance contributions.

ISS Ltd, based in the Channel Islands, employs more than 24,000 temporary agency workers across the UK, most of them working as supply teachers.

ISS says it is "meticulous in complying with HMRC codes on taxes and expenses".

HM Revenue & Customs says schools, councils or employment agencies could be liable for the shortfall.

The BBC's 5 live Investigates programme has discovered that thousands of supply teachers working in the UK are paid by Sark-based International Subcontracting Solutions Ltd (ISS).

ISS is a payroll company - sometimes known as an "umbrella" company - which pays the salaries and expenses of workers who find jobs through recruitment agencies in the UK.

The arrangement means that temporary workers, such as supply teachers, are the employees of ISS.

Because ISS is based offshore it does not pay employer's National Insurance contributions - but neither do the UK-based recruitment agencies that find the jobs for staff paid by ISS.

This could add up to many millions of pounds in unpaid tax. For example, for a supply teacher on a daily rate of £160, around £90 per week is not being paid to HMRC in employer's National Insurance contributions.

HMRC says that the UK-based employment agency through which the workers are supplied, or alternatively the end-user company, such as the school or local education authority, could be treated as the employer and therefore be liable for the unpaid National Insurance contributions.

'Effective enforcement'

This raises the prospect of HMRC having to pursue other public sector bodies and employees for the lost revenue.

ISS told the BBC that HMRC had no grounds to challenge its employees or business partners.

But the consultancy firm Professional Passport, which advises the recruitment industry on tax issues, says a lack of enforcement has encouraged the growth of offshore umbrella companies.

"We don't need more rules, or different rules, just effective enforcement of the existing rules," Professional Passport director Crawford Temple told 5 live Investigates.

"If these are proving too difficult to enforce then they should be reviewed and amended as a priority," he added.

Director of Tax Research UK Richard Murphy says the growth of umbrella companies is "the next big UK tax scandal".

Mr Murphy told the BBC: "The UK can't afford this tax loss and it can't afford so many households being put at tax risk. This is a scandal waiting to break."

The government also stands accused of having ignored the problem despite warnings.

Professional Passport wrote to Treasury minister David Gauke in July 2011 to point out the "potentially embarrassing" issue of public sector agency workers being employed by offshore umbrella companies.

Mr Temple says he is yet to receive a response.

"Mr Cameron was quick to use moral arguments when celebrities were utilising tax avoidance strategies, yet his own ministers failed to take any action, or even respond, when we highlighted serious tax avoidance issues directly to them on a number of occasions."

HMRC told the BBC that employers had a legal responsibility to operate PAYE and should question very closely anyone offering quick-fix tax and National Insurance arrangements.

"We are actively pursuing a growing number of investigations against these types of arrangements.

"The HMRC has already successfully pursued a number of companies for tax, National Insurance and interest where they were not playing by the rules."

Listen to the full report on 5 live Investigates on BBC Radio 5 liveon Sunday, 4 November at 21:00 GMT. Listen again via the 5 live website or 5 live Investigates podcast.

[Jon the Hat]

Outrageous.

[Captain...]

Outrageous.

Thought you would be all in favour of this, legally reducing your tax bill, why should anyone pay their fair share if they don't have to?

[Monk]

Now, THIS is tax evasion. Offshore benefit trusts are about as dodgy as it comes. HMRC should be able to nail these people on IR35.

[Dr The Singh]

This has been going on for a long time, interesting to see if anyhting happens!!

[Jon the Hat]

Thought you would be all in favour of this, legally reducing your tax bill, why should anyone pay their fair share if they don't have to?

There is a big difference between me thinking the rules are stupid and schemes like this which take people outside the rules by creating something which the rules were not aware of.

This has been going on for a long time, interesting to see if anyhting happens!!

The scale of it will be a surprise I expect.

[Captain...]

There is a big difference between me thinking the rules are stupid and schemes like this which take people outside the rules by creating something which the rules were not aware of.

The scale of it will be a surprise I expect.

Unless I have mis-understood it, what they are doing is not illegal.

Basically as a worker you have a choice of agencies to represent you, one offers you rate of £150 per day tax free because it is based off shore, the other offers you £160 but you have to pay tax because it is a UK company, so after tax you will take home less.

Which would you choose if you were in that situation?

The scandal here is not that supply teachers are dodging their tax, it is that the government is utilising such an agency to provide supply teachers, probably because they are cheaper, but they are cheaper because they are not paying tax.

[Leicfox]

Unless I have mis-understood it, what they are doing is not illegal.

Basically as a worker you have a choice of agencies to represent you, one offers you rate of £150 per day tax free because it is based off shore, the other offers you £160 but you have to pay tax because it is a UK company, so after tax you will take home less.

Which would you choose if you were in that situation?

The scandal here is not that supply teachers are dodging their tax, it is that the government is utilising such an agency to provide supply teachers, probably because they are cheaper, but they are cheaper because they are not paying tax.

I completely agree with this..^^^^

[Steven]

Unless I have mis-understood it, what they are doing is not illegal.

Basically as a worker you have a choice of agencies to represent you, one offers you rate of £150 per day tax free because it is based off shore, the other offers you £160 but you have to pay tax because it is a UK company, so after tax you will take home less.

Which would you choose if you were in that situation?

The scandal here is not that supply teachers are dodging their tax, it is that the government is utilising such an agency to provide supply teachers, probably because they are cheaper, but they are cheaper because they are not paying tax.

Quite and then moaning because they have to find extra money to hire permanent teachers. Worse not hire any teachers and let children's education suffer.

[Jon the Hat]

Unless I have mis-understood it, what they are doing is not illegal.

Basically as a worker you have a choice of agencies to represent you, one offers you rate of £150 per day tax free because it is based off shore, the other offers you £160 but you have to pay tax because it is a UK company, so after tax you will take home less.

Which would you choose if you were in that situation?

The scandal here is not that supply teachers are dodging their tax, it is that the government is utilising such an agency to provide supply teachers, probably because they are cheaper, but they are cheaper because they are not paying tax.

I wasn't blaming the teachers. Did I say it was the teachers fault? It is outrageous that this is possible.

[Captain...]

I wasn't blaming the teachers. Did I say it was the teachers fault? It is outrageous that this is possible.

Sorry, but your comment of "outrageous" really did leave it open to interpretation, so you agree that government is totally at fault for letting it happen and now failing to address it.

[ADK]

Another slightly related thing is when public sector organisations outsource work to foreign countries. They don't factor in the effective extra cost of the loss in tax contributions. Eg public sector organisation makes 10% labour cost savings of of their budget by outsourcing work to India. However, this results in a net loss because instead of the employees paying tax on their earnings in Britain, the money goes to India.

[Captain...]

Another slightly related thing is when public sector organisations outsource work to foreign countries. They don't factor in the effective extra cost of the loss in tax contributions. Eg public sector organisation makes 10% labour cost savings of of their budget by outsourcing work to India. However, this results in a net loss because instead of the employees paying tax on their earnings in Britain, the money goes to India.

You would hope they would take that into account, but it seems the government is only too keen to award lucrative contracts to foreign companies, Siemens (I think) got a lucrative train carriage building contract ahead of Bombardier in Derby which will pretty much result in the plant being shut down workers laid off and more money flowing out of the economy at a time when we need as much cash flow as possible in this country to keep on recycling the money and increasing the coffers in terms of income tax and VAT, not to mention keeping people in work and off benefits and keeping English manufacturing alive.

http://www.guardian....-rival-contract

More on the decision here, naturally the Conservatives are blaming the decision they made on Labour, and would have awarded it to Bambardier if they could, more political point scoring, just sickening.

[Rincewind]

It's OK the Government will find another way of getting the tax back and blaming for the shortfall.

I wonder who it will be?

[Jon the Hat]

Sorry, but your comment of "outrageous" really did leave it open to interpretation, so you agree that government is totally at fault for letting it happen and now failing to address it.

If by Government you mean the civil servants who run HMRC then absolutely.

[Jon the Hat]

Another slightly related thing is when public sector organisations outsource work to foreign countries. They don't factor in the effective extra cost of the loss in tax contributions. Eg public sector organisation makes 10% labour cost savings of of their budget by outsourcing work to India. However, this results in a net loss because instead of the employees paying tax on their earnings in Britain, the money goes to India.

As it goes, the labour arbitrage between England and Inida is much more than 10%, however companies underestimate the challenges of managing an offshore third party workforce.

[Steven]

As it goes, the labour arbitrage between England and Inida is much more than 10%, however companies underestimate the challenges of managing an offshore third party workforce.

Indians in India working for a UK company are typically only 60% as productive as someone working, Indian or otherwise, in the UK. Plus there are issues, I know through my own experience, that having to deal with someone in India is difficult to say the least.. Plus contracts in India do not seem to have the same degree of legal strength as they do in the UK.

[ADK]

As it goes, the labour arbitrage between England and Inida is much more than 10%, however companies underestimate the challenges of managing an offshore third party workforce.

But do they factor in the effect of that money not being spent in the UK economy? Like you say there is an added overhead of managing an overseas workforce. Personally i think it is wrong for public money to go to foreigners when it could go to a British worker who pays taxes and spends their money in the UK thus driving the private sector aswell.

[Captain...]

But do they factor in the effect of that money not being spent in the UK economy? Like you say there is an added overhead of managing an overseas workforce. Personally i think it is wrong for public money to go to foreigners when it could go to a British worker who pays taxes and spends their money in the UK thus driving the private sector aswell.

Completely agree...

...within reason, we have to ensure that UK bids are competitive and are not exploiting the fact they are guaranteed to give it to UK company and inflating the figures.

[davieG]

But do they factor in the effect of that money not being spent in the UK economy? Like you say there is an added overhead of managing an overseas workforce. Personally i think it is wrong for public money to go to foreigners when it could go to a British worker who pays taxes and spends their money in the UK thus driving the private sector aswell.

Where do you draw the line - it all gets very complicated as this story shows.

Ford may have shut the Southampton factory anyway but it's hard to believe that this cheap loan by the EU Investment bank to a non-EU company didn't have an influence on the decision.

George Osborne is under fire for backing an £80million loan to a truck ­factory in Turkey – which went on to “steal” ­hundreds of British jobs.

The Chancellor faces angry questions over the EU payout, which politicians believe played a key part in Ford’s decision to shut one of its ­factories here.

Mr Osborne is a governor of the European Investment Bank, which last October approved the cut-price loan to Ford Otosan.

The cash was given to the firm that makes the latest Ford Transit vans at its Turkish ­factory in Kocaeli.

Ford announced last month that its factory in Southampton, where the vans are currently built, will now close. Some jobs are also expected to be lost at its ­Dagenham plant, where parts for the vehicle are produced.

The closure will cause the loss of up to 1,100 jobs.

Mr Osborne backed the huge loan of European Union cash, at an interest rate of just two per cent, to the company in Turkey. The country is not even a member of the EU. Labour’s Shadow ­Business ­Secretary Chuka ­Umunna yesterday demanded that Mr Osborne ­reveal why he allowed the loan to go ahead.

He said: “The closure of Ford’s Southampton plant is a ­devastating blow with 1,100 jobs going as a result and the end of Ford producing vehicles in ­Britain.

"The Turkish plant which won the contract over ­Southampton did so with the help of a loan from the ­European Investment Bank of which George Osborne is governor. Why did he allow this to happen?

"This week Lord Heseltine was right to say ­ministers should back British business by supporting key ­sectors like car production.

“The Chancellor claims he agrees with him but this calls that all into ­question.”

Last year the Southampton plant assembled around 28,000 Transit vans. Its closure will end 40 years of production there.

Ford plans to expand ­production of vans in Turkey from around 210,000 a year to 290,000 by 2014.

[ADK]

I don't see what the complication is?

[davieG]

I don't see what the complication is?

Because it's a complex equation when you take every potential impact into account, they're like falling dominoes each impacting on the other how far do you look.

I'm not excusing it this country is totally devoid of joined up thinking because organisations are assessed as being successful as individual entities they have no remit to consider the impact their decisions have on other organisations even if they are all sourced from the same pot of money.

[ADK]

I don't know about that, I only did economics A level so i'm hardly an expert but its easy to see the implications of certain decisions.

[Captain...]

Because it's a complex equation when you take every potential impact into account, they're like falling dominoes each impacting on the other how far do you look.

I'm not excusing it this country is totally devoid of joined up thinking because organisations are assessed as being successful as individual entities they have no remit to consider the impact their decisions have on other organisations even if they are all sourced from the same pot of money.

It's not that complex though is it, Osbourne once again showed he is a clueless fvckwit, public money was loaned to a massive multinational corporation for the express purpose of closing down a production plant in the UK, and Osbourne sanctioned it.

[Webbo]

You would hope they would take that into account, but it seems the government is only too keen to award lucrative contracts to foreign companies, Siemens (I think) got a lucrative train carriage building contract ahead of Bombardier in Derby which will pretty much result in the plant being shut down workers laid off and more money flowing out of the economy at a time when we need as much cash flow as possible in this country to keep on recycling the money and increasing the coffers in terms of income tax and VAT, not to mention keeping people in work and off benefits and keeping English manufacturing alive.

http://www.guardian....-rival-contract

More on the decision here, naturally the Conservatives are blaming the decision they made on Labour, and would have awarded it to Bambardier if they could, more political point scoring, just sickening.

The terms of the bidding for that contract were drawn up under Labour in accordance with European law. These laws mean that British companies, at least in theory, should be able to bid for foreign contracts on an equal footing. Whether it would have been possible to skew the contract to give British firms an advantage I don't know but it was definitely Labours doing.