A STRUCK-OFF solicitor's Edinburgh-based companies have run up tax debts of almost £60 million and have been placed into voluntary liquidation.

Officers of HM Revenue and Customs have submitted a claim of £58m in unpaid tax and penalties to David Allen's payroll and employment agencies.

It is understood Mr Allen's Employ-E company made the application for voluntary liquidation over the tax debt, which sources say he is not contesting.

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It is the second of Mr Allen's companies to go into liquidation in recent weeks. Legitas Group, which provided an outsourced payroll service for temporary workers and recruitment agencies, has also gone into voluntary liquidation.

More than £22m is thought to be owed to Legitas's creditors, including an estimated £200,000 to HM Revenue and Customs. The bulk of the debt is owed to Employ-E, however. Legitas had a £230m turnover and 20,000 agency workers on its books.

Employ-E had up to 60,000 employees. These were temporary workers it supplied to recruitment agencies throughout the UK. All the employees were paid off prior to the appointment of Henderson Loggie as liquidators.

Mr Allen's companies help temporary workers and the recruitment agencies which place them in employment "maximise earnings by offsetting legitimate expenses against gross pay".

But it is understood that HM Revenue & Customs was unhappy with attempts by Employ-E to exploit a rule that meant temporary workers treated money they spent on travel and food as a tax-deductible expense.

It is understood HMRC is investigating, prompting concerns about tax avoidance.

Tax officials are known to be concerned about the use of the "payday by payday" tax relief model, whereby the employer applies income tax and National Insurance relief to the amount of expenses which an employee has incurred, with the relief applied each payday. The effect is that only the balance is subjected to income tax and National Insurance.

HMRC has already warned that the model does not comply with Taxes or Social Security Acts and associated regulations.

It was estimated Legitas alone helped employment agencies, including Mr Allen's, avoid tens of millions of pounds in tax or National Insurance contributions.

The 60-year-old businessman, who has a £1m mansion in the Borders complete with its own golf course, was banned from being a solicitor in 2000 for "unbefitting conduct" after he "improperly used client funds for his own purposes and for the benefit of other clients and failed to keep properly written-up accounts".

Liquidator Claire Middlebrook said: "My first step is to carry out an investigation into the position and workings of Employ-E with the aim of realising any assets it has for the benefit of the creditors."

Tenants at an address associated with Mr Allen in Edinburgh said they were unaware of any connection he had to the New Town property.

They confirmed they were renting the North Castle Street address but would give no further details.

An HMRC spokesman declined to comment.

Mr Allen was unavailable for comment.