A leading recruitment firm has advised some of Britain’s top construction companies to reclassify temporary staff on some of the UK’s largest building sites as “unsupervised” in an effort to avoid a clampdown on a tax loophole.
A leaked presentation, obtained by the Unite union, shows how recruitment firm 1st Step Solutions advocated a “solution” to George Osborne’s crackdown.
The chancellor introduced measures earlier this month designed to tighten rules on which self-employed workers can claim tax relief on their travel and subsistence expenses.
His clampdown was in response to the prevalence of “umbrella” recruitment firms specialising in providing self-employed staff and exploiting tax relief available to these workers on a large scale.
1st Step Solutions, a specialist in supplying self-employed workers in industries including construction and rail, is known for using complex “tax efficient” employment structures.
It has supplied staff to construction firms working on London Underground and Network Rail engineering projects as well as workers employed at Emirates Stadium in north London, Westfield shopping centre in west London, and Addenbrooke’s hospital in Cambridge.
Unite said the leaked presentation had been circulated to 1st Step Solutions’ clients in the construction industry. Bernard McAulay, a national organiser for Unite, said: “We all know you can’t just go on to a construction site and just do what you want to do. These are workplaces were there has to be supervision.”
The clampdown was announced in the budget last year, when Osborne said: “We will stop employment intermediaries exploiting the tax system to reduce their own costs by clamping down on the agencies and umbrella companies who abuse tax reliefs on travel and subsistence.” He described recruitment practice as “unfair”.
Under Osborne’s tougher new rules, the tax relief can only be claimed by genuinely self-employed workers and not by workers who are under “supervision, direction or control” while at work.
The leaked presentation from 1st Step Solutions, which is based in Dartford, Kent, advises clients on changes they can make in some instances to escape the chancellor’s clampdown.
The presentation admits that previous rules have allowed the firm to keep “our clients charge rate as artificially low as possible”. Even under the tougher rules, it adds, there are opportunities to retain “tax efficiencies” in relation to skilled workers.
1st Step Solutions believes construction firms can claim such workers are not subject to supervision, direction or control – and therefore able to claim tax reliefs.
On a presentation slide subtitled “The solution”, clients are advised: “We can provide self-employed contractors to your sites providing there is a process in place which determines a contractor’s ability to work without SDC [supervision, direction or control].”
The company boasted that this solution had been “devised and approved with expert tax and legal advice we have received from a leading specialist QC”.
McAulay said: “The reason HMRC closed this tax loophole in the first place was because employment business service providers were exploiting temporary workers by getting them to claim tax relief on travel and subsistence to top up low wages at the same time as minimising employment and national insurance costs.
“This latest mutation of bogus self-employment would effectively see workers who should be directly employed being stripped of holiday pay and their automatic enrolment pension contributions, while allowing employers to pay no national insurance and circumvent nationally agreed rates of pay.”
In a statement, 1st Step Solutions told the Guardian: “The document we issued to clients was intended to inform them of the latest legislative changes introduced in the Finance Act 2016. It was not intended to advocate a particular position with regard to tax reliefs and we do not believe that it did so – in fact, we directly promote a PAYE workforce.
“We used expert advice from external accountants and lawyers in the preparation of the document. We also sought further expert legal advice following publication, which confirmed compliance with HMRC rules.
“Since we issued the document, we have subsequently written to all of our clients making clear that it was not our intention to advocate a particular position with regard to tax reliefs and reiterating that we actively promote a PAYE workforce.”
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