HMRC is losing millions in unpaid employers’ national insurance (NI) because employees are on the payroll of offshore companies, an investigation by Radio 5 Live
has found. The programme revealed how employers, whether recruitment agencies, local authorities or schools, employed supply teachers who were actually paid by an offshore company outsourced to pay supply teachers’ wages. And this company was not paying National Insurance (NI) employers’ contribution.
Tax experts warned that someone had to pay employers’ national insurance – if the offshore company didn’t, then the agency, LA, or school could be pursued. This meant the bill could ultimately be paid by taxpayers.
It was tempting for agencies, LAs or schools to use this method because it reduced costs – the savings of not paying employers’ NI trickled down to the organisation hiring supply teachers. It also seemed to benefit supply teachers because part of the saving went to them. However, if their employer didn’t pay the employers’ NI contribution then supply teachers would find it affected future benefits and pensions, a tax expert warned.
Crawford Temple of the consultancy firm Professional Passport said he had written 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. He hadn’t received an answer.
The problems are these:
1 HMRC losing millions of pounds of employers’ NI contributions;
2 The possibility of taxpayers having to pay the bill;
3 The pressure on LAs and schools to save money;
4 The competition between agencies to reduce costs;
5 HMRC not enforcing existing rules effectively;
6 The Government failing to tackle the problem.
A tax adviser said public authorities should be careful about how they procure services. Using an offshore company may initially save money but could result in huge bills. What the programme didn’t say was that public authorities could be seen to be complicit in avoiding tax if they failed to ensure that the organisation outsourced to pay wages was paying employers’ NI contributions.
BBC Radio 4’s File on Four
has revealed how huge profits could be earned by private companies at the taxpayers’ expense, Channel 4 Dispatches
found that one company was profiting from the NHS while offering an inferior service, the National Audit Office (NAO) has warned that public officials who procure services from outsourcing companies need a new set of skills suitable for a commercial environment, the Public Accounts Committee (PAC) has said “due diligence” is missing in the urge to rush through outsourcing contracts and now Radio 5 Live has exposed how HMRC is losing millions from unpaid NI employers’ contributions from an offshore firm outsourced to pay supply teachers.
At the same time the Government makes it known that its preferred method of procurement is through outsourcing. It is failing to confront tax avoidance and cutting HMRC staff who will be needed to implement any measures the Government eventually takes.
And Education Secretary, Michael Gove, attacks the NAO and PAC
for being “risk averse”.