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Recruitment sector tax avoidance could result in millions lost to exchequer

An investigation by The Guardian has recently discovered how millions of pounds could be lost to the exchequer as a result of aggressive tax avoidance in the recruitment sector. The chancellor has been asked by MP Frank Field to reassure parliament that he will recover the monies lost to limit the potential impact on tax revenues.

Anderson Group, one of the leading financial services firms in the recruitment sector promoted a scheme which created around 2000 mini companies, all of which are now being simultaneously wound up.

It is thought that this type of scheme has been designed to save tax by setting up thousands of tiny firms to exploit VAT and national insurance rules that were originally put in place to help the smallest of businesses in the UK.

The VAT and national insurance rules, known as the Employment Allowance scheme, allows small businesses and charities to reduce their National Insurance contributions by up to £2,000 to help them grow and develop in the early days of the business.

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The scheme works by transferring contracts of low-paid workers from one large employment agency to a number of smaller companies. How it works in practice is if an employment agency supplied a warehouse with 100 workers, the scheme may then create 50 new companies with two employees per company.

Chairman of the House of Commons work and pensions select committee and MP, Frank Field, asked the chancellor for clarification on his and HMRC’s position going forward; “What assessment [the chancellor] has made of the impact of the mass liquidation of mini companies associated with the Anderson Group on tax revenue?”

The smaller companies linked to Anderson Group have been put into voluntary liquidation but this move came after HMRC’s fraud and investigation service asked the company for details regarding the high number of VAT registration applications the company had made on behalf of its clients.

According to tax experts, who were questioned about the structure of the Anderson scheme, the mass liquidation of the small companies makes it very difficult to go after the firms for any potential VAT or national insurance they owe.

Anderson Group previously issued a statement regarding the situation and allegations to say; “Anderson Group is a global provider of support services across a range of markets and sectors. In all cases our services are provided in accordance with the law as it stands and, where appropriate, under advisement from counsel.

“If the law changes, then our services do so as appropriate. We constantly seek QC or other professional opinion to ensure that we act within the rules at all times.”

Regardless of whether the allegations are true or not, it seems that there will be much outcry unless the millions of pounds in tax that are owed are paid and collected. If Anderson Group are found guilty of tax avoidance, this may raise concerns in future over the use of liquidations when HMRC are have asked questions about a company and its tax situation.

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