Alexander tightens noose on tax avoidance as Legitas Group goes bust

A government clampdown on offshore intermediaries announced yesterday by Treasury minister Danny Alexander has been welcomed by the recruitment industry.

Fri, 31 May 2013

A government clampdown on offshore intermediaries announced yesterday by Treasury minister Danny Alexander has been welcomed by the recruitment industry.

The government believes that some recruitment agencies are using these structures to avoid paying income tax and National Insurance Contributions (NICs) for their UK-based workers. Announcing a number of proposals to stamp out this practice, Alexander said: “The rule is simple: if you employ people in the UK, you need to pay tax and National Insurance in the UK. We will make sure you do that.”

To end this abuse, the government intends to introduce an income tax and NIC charge levied on the offshore intermediaries of those workers engaged in the UK.

In a further measure, where the PAYE/NIC isn't accounted for the debt can be transferred to the intermediary or end user.

Yesterday’s announcement follows March’s Budget, in which the government made clear its intention “to ensure the correct income tax and NICs are paid by offshore employment intermediaries”. Closing the loophole is expected to save the Treasury £100m a year. 

Matthew Brown, managing director of giant group, welcomes the news. “Any action on agencies or intermediaries who attempt to avoid employment tax and or NI is very welcome.” Brown adds: “Offshore structures are generally only used to avoid some part of tax and NI.”

Matthew Huddleston, chief financial officer of umbrellas firm FPS Group, which is based in the Isle of Man, also welcomes Alexander’s statement.

Kevin Green, chief executive officer of the Recruitment & Employment Confederation (REC), tells Recruiter that the practice of workers in the UK avoiding tax and NI could not be justified. “We think the government is doing the right thing,” he says.

Meanwhile in another apparent sign that HM Revenue & Customs (HMRC) is taking a tough stance on tax avoidance, liquidators have been appointed to payroll company Legitas Group, which recently went bust owing creditors more than £22m.

As reported in April, Legitas, which offered an outsourced payroll service for agencies and temporary workers, switched all its temps to PAYE after it “identified concerns” following an HMRC audit.

In a statement issued to Recruiter, Claire Middlebrook from liquidators Henderson Loggie says the main creditors are Employ E Ltd, which is owed £22.56m and Employ E Plus, which is owed £290k - these figures having been provided by the directors. According to Companies House, Charles Allen, who runs Legitas Group and is the sole director, is also a director of both Employ E Ltd and Employ E Plus. HMRC is owed £40k.  

Recruiter contacted a number of companies, which according to their website pages are still Legitas Group companies. One person said theirs was now an independent company and that the website had not yet been updated. Recruiter asked to speak to David Allen, who runs Legitas Group. However, at the time of going to press no one had returned our calls. 

One payroll intermediary expert, who does not wish to be named, says he sees the hand of HMRC behind the liquidation. He tells Recruiter that only HMRC could be owed such a large sum. “I would imagine that one of the Legitas companies owes money to HMRC,” he says, explaining that this could be just one part of an attempt by HMRC to recover money owed to it.

John Chaplin, director of global tax services at Ernst & Young, agrees. He tells Recruiter: “It is a fairly safe assumption that this relates to a challenge [for unpaid taxes and national insurance] by HMRC.”

Chaplin adds: “HMRC has made its intentions known that it will pursue those who operate outside the legislation as far as they need to, up to and including putting them out of business.”

An HMRC spokesperson tells Recruiter that it cannot comment on individual taxpayers. 

FPS Group’s Huddleston adds that the case of Legitas Group “demonstrates that there are payroll structures operating in the UK and not just overseas that abuse the system and put contractors at risk”.

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