Comment

By Shan Shaba

Earlier this month I read an article that made me feel sick and happy at the same time.

The article was an expose on tax avoidance schemes that recruitment agencies have been using for years, to avoid making the employers national insurance contributions for their workers, whilst still charging it to their clients, some who knew and took advantage of the lower rates and some simply had no idea.

The sickness came from the size and scale of these operations across the UK and the happiness came from knowing that, at last, someone had “outed” these horrible, exploitative schemes. Sadly the recent changes in legislation around IR35 don’t cover these schemes as the focus has been on professional contractors who are earning a lot more that the National Living Wage.

I have known of these so called mini-umbrella schemes for years, where Brightwork had been approached by some of the finance organisations who peddled them to agencies across Scotland, and we refused every time.

However, I also know of many companies in Scotland that, either inadvertently or knowingly, used employment agencies who utilised these types of schemes. They were not just small employers; many of them were ‘big names’ from industry and the high street that distribute/manufacture the products we buy every day.

Imagine being a worker coming to Scotland for a better life or to earn money to send home, where the first stop is often at a recruitment agency to find work quickly. The agent offers them work and asks them to fill out the paperwork, which includes signing documents agreeing to be a self-employed worker at national minimum wage. The worker does not know enough about the PAYE system in the UK to ask questions and goes on to work for the agency. Their payslips don’t mention the agency, usually it’s a shelf company registered in the UK, with a Filipino-based company director (it’s harder for HMRC to pursue infringements in certain jurisdictions). These schemes have spread though the Scottish Economy like a tax avoidance variant of Covid for years. The race to the bottom line has perpetuated the use of this type of scheme, but is this a valid excuse for not looking after the workers on your premises? Those agencies that took part should be ashamed of knowingly paying their workers through this loophole, and those businesses that partnered with those agencies and knew this was going on should ask themselves why they allowed this to happen in their supply chain, and be ready for any litigation that is coming their way in the near future.

Brexit and the pandemic have created a perfect storm with hospitality, agriculture and manufacturing all struggling to recruit across Scotland and there are an estimated 60,000 vacancies that remain unfilled in our economy. “Turning a blind eye” to basic legislative compliance is well documented, but the risk of modern slavery becoming a part of a business’s supply chain is greater than ever.

If a recruitment agency was willing to take part in these tax avoidance schemes, what else is missing from their compliance processes that could facilitate what Theresa May calls “the biggest human rights issue of our time”?

If they are willing to pocket the money for themselves that a worker thinks is going towards their state pension, maternity pay or their job seekers allowance, will they have processes in place to identify if workers are having their wages withheld by an unscrupulous gang master? Will they train their staff to spot the signs of a worker that is being threatened with physical or sexual violence? Will they have the systems and processes in place to identify multiple people being paid into the one bank account or having the same phone number or address?

If a business has knowingly allowed this to happen, either through turning a blind eye or simple ignorance, then they could be liable to prosecution, according to the HMRC. If you have agency workers on your site, ask them how do they get paid? Is the agency’s actual trading name on the payslip? Look at your labour supply chain and ask them if they have ever used these types of schemes, and then record this information and what your next steps were.

Why should a hirer care? The brand and reputational damage could last a lifetime, the risk of unpaid tax liabilities cold be pushed up the supply chain which the HMRC have already intimated, legislation such as the Criminal Finance Act and the Modern Slavery Act effectively mean that large organisations need to self-police their supply chains or face penalties where there are failures.

Offloading the responsibility to your labour provider will not be enough in the eyes of the law anymore.

Shan Shaba is a director of Brightwork Recruitment.