Nick Shaxson ■ Zero hours contracts: how tax avoidance helps drive the abuses
There has been a lot of attention about a report in the UK summarised in today’s Financial Times:
“Unions and politicians have called for action to curb employment on a “zero-hours” basis after official data showed that UK employers are using about 1.4m contracts that do not guarantee a minimum number of hours.”
TJN has been contacted by a victim of abusive behaviour towards temporary employees, who has asked us to keep their identity, and the identity of the companies they have worked for, anonymous. It reveals how abusive tax practices are an important driver of, and a contributor to, the problems.
“Dear Tax Justice Network
I am wondering if you are including forced tax avoidance among low paid temporary employees in the UK. It may not sound as dramatic as the big companies avoiding tax but hundreds of thousands are now working under these conditions and so losing millions of pounds of tax for their communities but also working under very poor, confusing contracts because of this.
A couple of years ago when desperate to pay the mortgage and unemployed I took on a temporary job that was advertised as £8-10 an hour plus travel refund. 50 other people were employed to start at the same time. Company A had contracted out admin. work to Company B, who then had contracted it out to an employment agency. We all turned up, from all over North-East England, to be told we would not actually get our travel expenses paid. Some left immediately. Those who had given up other jobs or come off unemployment benefit had no option but to stay.
Two weeks later when the first pay slip came we saw we were on minimum wage, not £8-10. Everyone was furious and we rang up the agency for an explanation. We were told we had signed contracts and we were not employed by them but by an ‘umbrella company’ and we had declared ourselves as self employed, we were called ‘contractors’. Most people were rushed into signing up for the job and nobody understood how our pay would work. Eventually a rep from the umbrella company came to an angry mob of 50 to explain it was all above board and we would get more money if we claimed back out travel expenses as tax relief. Some people did get a little bit more in their pay packet the next week, but only those who paid to travel in, and the travel costs weren’t fully covered this way.
I rang up the agency and said I wanted to go back on a payroll system and the manager blew up at me, shouted at me down the phone and told me to leave the job if I didn’t like it. He then rang back very apologetically and said I could get another £1 an hour – if I didn’t tell everyone. I said I would have to tell everyone, so he said he would give everyone £1 an hour more to keep us quiet. What was in it for him, I wondered, and why did he get so angry that I wanted to go on payroll?
Despite a system that seemed to be designed to be too complicated for normal people to understand, people were given little option but to go along with it, which many found very stressful. Nobody understood what our self employed status meant or if we had to fill in the self assessment tax forms now: apparently we didn’t.
We had signed up as self employed, and we were paying no tax at all; nor did we have holiday or sick pay. Our wages were being bumped up to what looked to be a slightly better wage through claiming tax back on the travel – which could have been contested by the tax office and which we would have then had to pay back. We were also having to pay employers’ national insurance, employee national insurance and a fee to the umbrella company (£25 a week) for admin. The agency was making a cut on this, so was the umbrella company. Us workers were just losing out.
Apparently hundreds of thousands of temporary workers are working under these conditions, including teachers and nurses – and they have little option. Few people understand how the systems work, and have no way of working out if they have been paid correctly each week – it is horrendously complex. They are losing pay and have to work with no sick pay or annual leave. This is a subtle widespread tax avoidance scheme being run by the umbrella companies, who are basically accountants, and millions of pounds are being lost this way. On top of the workers and UK losing out the government is paying to contract out for work, which then gets contracted out several times before a worker gets paid. Many companies are cashing in on this, and the poorest in our country are losing out in multiple ways.
One final point. The way the wages are bumped up are by claiming travel and food expenses, supposedly because the worker is regularly sent to new assignments. But usually this is not the case because they are usually at one place of work and in tax terms the expenses are not valid, as they are commuting expenses. We were told in theory we could be asked for the money back at the end of the tax year but it was unlikely HMRC would notice. This left people in fear of a large amount of their ‘wages’ being clawed back.
We were also told we had to fax in train tickets and food receipts; to get our hands on whatever we could to claim the expenses. This is definitely tax avoidance but the workers couldn’t understand it enough to be sure they wouldn’t lose out – or even to realise it was tax avoidance. The 50 employees worked there for at least 6 months. There was another site with another 50 workers. With each one paying £25 a week ‘admin fee’ for the umbrella company’s payroll services I reckon the umbrella company made at the very least £60,000 out of the fees – and goodness knows what else they made out of messing around with people’s wages and potential under payments nobody could contest. Money was also saved by getting the workers to pay employer’s National Insurance.
Here is another question: would someone get their benefits taken away if they refused to accept a job that insisted on using an umbrella company? Where would the worker stand? I do not hear anyone talking about this or campaigning to stop it.
Would your organisation be able to start up a campaign?”
TJN is not, unfortunately, a campaigning organisation, but we would be delighted to see this scandal being more widely taken up. For further explanations of how these scams work, look at this recent article by the BBC.