11/07/17

Recruitment advisers' tax scheme liquidated after HMRC asks questions

Evidence shows parts of aggressive tax avoidance scheme promoted by Anderson Group have been closed abruptly, reports The Guardian.

An aggressive tax avoidance scheme, linked to one of the recruitment industry’s highest-profile names, is being liquidated in a move that could prevent HM Revenue and Customs from recouping millions of pounds.

The scheme, which experts say raises questions over triggering a possible criminal investigation, has been promoted by Anderson Group, one of the sector’s leading financial services firms. It has been used by recruitment agencies supplying low-paid workers to businesses including Marks & Spencer and Dixons Carphone.

The arrangements – which work by setting up thousands of tiny firms to exploit VAT and national insurance rules that were originally designed to help very small businesses – have netted vast windfalls for those involved.

The Guardian has seen evidence showing that the closure of parts of the scheme followed Anderson being asked by HMRC’s fraud and investigation service for details about the large numbers of VAT registration applications made on behalf of Anderson clients last year.

Documents show that almost 2,000 of the Anderson scheme’s mini companies are now being simultaneously liquidated.

Tax experts said the moves make it extremely difficult to pursue the defunct firms for any potential VAT or national insurance debt – particularly as each mini company appears to only have a Philippines-based director and barely any retained assets.

Dan Neidle, a tax partner at City law firm Clifford Chance, said that in his view the scheme had been set up to avoid tax. He said: “I am troubled by the involvement of multiple Philippine individuals, when there is no commercial or tax reason to involve anyone offshore. The obvious inference is that the purpose of choosing the Philippines was to hinder HMRC’s ability to investigate and recover any tax due.

“The courts have struck down almost every tax avoidance case that has come before them in the last 10 years. This scheme is almost certain to meet the same fate. The difference is the obvious hopelessness of the scheme, and the steps the promoters took to hide their tracks. That should prompt HMRC to pursue the companies and individuals involved more aggressively than they would if it were just another a failed tax avoidance scheme. A prosecution for tax fraud may not be out of the question.”

Jolyon Maugham QC, a tax barrister at Devereux Chambers, said that in his opinion “aspects of [the structure] look designed to thwart HMRC’s ability to recover tax due to it – and investigate whether it is due”. He added that the scheme appeared to possess features “that would cause me to want to explore whether the promoters have crossed the line into the criminal arena”.

Anderson Group did not respond directly to questions about the scheme’s legality.

In a statement issued in response to the Guardian’s request for comment, group commercial director Steven Zahab said: “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.”

The tax schemes were supposed to work by transferring contracts of low-paid workers from a single large employment agency into a web of thousands of tiny companies. So, if an employment agency previously supplied a warehouse with 300 workers, the scheme’s promoters might create 150 new tiny companies, each employing two workers.

The structure was used to justify registering thousands of tiny companies for the flat-rate VAT scheme, which allows very small firms to charge VAT at 20%, but pay it back to the exchequer at about half that rate.

It also created thousands more companies from which to claim the government’s £3,000 employment allowance, a jobs subsidy that is only claimable once a year by a single firm.

Such tactics, which have been used by a number of companies, are said to have cost the taxpayer a total of “hundreds of millions” and have proved controversial.

In 2015, following a BBC investigation into Anderson, HMRC issued a notice advising anybody using schemes designed to exploit the employment allowance to withdraw from doing so to “avoid the costs of litigation and minimise any interest and penalties due on underpaid national insurance”.

Last year, following a Guardian undercover investigation, the government attempted to close down the VAT portion of these schemes.

While there are tax experts who say that the schemes comply with UK tax legislation, they typically argue the component companies in the structure must be independent of each other.

Anderson insists it was independent of the schemes. It said its involvement with these tax avoidance products was limited to it helping to sell the arrangements alongside a “former client” called MyPSU.

However, the Guardian has seen evidence linking Anderson to MyPSU, as well as the mini companies employing the workers.

The links between Anderson and MyPSU include:

Internal Anderson documents showing how the VAT flat-rate scheme made Anderson hundreds of thousands of pounds a week – and most of its profit – from a series of recruitment agencies;

Companies House filings showing that all of the directors running MyPSU were simultaneously Anderson employees;

A sales pitch revealing how a MyPSU representative presented himself as a current Anderson employee and explained how MyPSU was created within Anderson; and,

Documents showing that Anderson’s majority shareholder, Adam Fynn, registered the MyPSU internet domain name. Fynn’s name was removed from the registration following the Guardian’s questions on the subject.

Anderson Group’s links to the mini companies in the scheme include Companies House filings showing:

Alona Varon, a former director of MyPSU and resident of the Philippines, was also a director of scores of the scheme’s mini companies being liquidated. Varon is additionally a director of Varon Services, which in December 2016 changed its name from Anderson Legal Services. It was wholly owned by an Anderson subsidiary, until a change to the shareholder register was filed on the day the Guardian asked about the links;

Samantha Forbes, an employee of Fynn’s unconnected business the Drinks Experience Group, was company secretary of scores of the mini companies now in liquidation; and,

Anderson acted as an agent for many of the mini companies now being shut down.

Anderson repeatedly declined to answer the Guardian’s questions about the links to MyPSU and the mini companies – or how monies accrued via a small business VAT scheme were treated as its own profits.

The group added it does not believe it was connected to MyPSU or the mini companies, and said that public registers linking Anderson and other parties in the scheme were altered after the Guardian’s questions “served as a reminder for former clients to bring their records up to date”.

Fynn, Forbes and Varon did not comment.

Marks & Spencer said it had been supplied with workers by the logistics group DHL, which in turn hired workers from 24.7 Recruitment, an employment agency that used MyPSU. DHL said it was not aware of the scheme.

Dixons Carphone said it had not known about the arrangements or benefited from them.

Neither MyPSU Ltd, which is no longer trading, nor 24.7 commented. A subsequent sister firm of MyPSU, MyPSU Subcontractors, is now in liquidation.

What is Anderson Group?

Anderson Group describes itself as “the UK’s leading provider of support services to the recruitment and contracting sector”.

Founded in 2005 by “employment industry and accountancy experts who shared a vision; to be a leading voice for the rights of recruiters and contractors” the company has grown sufficiently to augment its base in Luton with offices in the Philippines and India.

It now boasts of being a “£100m+ global operation” providing “outsourced business process services to some 200 recruitment agencies and SME businesses and accountancy support services for tens of thousands of contract workers”.

The growth has made Anderson one of the best-known names in the recruitment industry, and it was the headline sponsor of the Recruiter Awards for Excellence for 2014, 2015 and 2016.

The business is controlled by the 33-year-old Adam Fynn via his Fynn Holdings, a holding company that owns about 80% of the shares in Anderson Commercial Holdings Ltd, which in turn owns a number of the Anderson operating businesses.