Supply teachers in tax row over offshore umbrella company

An investigative radio programme has claimed that thousands of public sector workers have unwittingly been part of a massive tax avoidance scheme to save their employer millions of pounds - but which has left the taxpayer out of pocket.

Radio 5 Live Investigates looked into the affairs of ISS Ltd, based in the Channel Islands, which it claims employs more than 24,000 temporary agency workers across the UK, most of them working as supply teachers. The programme also claimed that the Government has ignored warnings about what was described as a 'hidden scandal'.

The programme explained that offshore umbrellas do not pay employer's National Insurance contributions, nor do the UK-based recruitment agencies that find the jobs for staff. It claimed this could add up to many millions of pounds in unpaid tax.

HMRC says that the UK-based employment agency through which the workers are supplied, or alternatively the end-user company, such as the school or local education authority, could be treated as the employer and therefore be liable for the unpaid National Insurance contributions.

However, ISS says that HMRC had no grounds to challenge its employees or business partners.

Crawford Temple of the consultancy firm Professional Passport, and a member of UKTECH's expert panel told 5 Live Investigates that a lack of enforcement has encouraged the growth of offshore umbrella companies.

He said: "We don't need more rules, or different rules, just effective enforcement of the existing rules. If these are proving too difficult to enforce then they should be reviewed and amended as a priority".

Crawford told UKTECH: "It is wrongly assumed that as the offshore provider does not have a liability for Employers National Insurance then there is no liability. The fact is there is a liability the question is who pays it; HMRC have the powers to pass this to the end client or recruitment company."

Crawford said he wrote 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 is yet to receive a response.

This is the second time in as many weeks as Radio 5 Investigates has turned the spotlight on the practices of payroll or umbrella companies.

To listen to the programme until next Saturday, go to Radio 5 Live Investigates.