Government scheme to increase employment has been ‘misused’ and ‘abused’ by tax avoiders

28 May 2015

The BBC has uncovered an ‘aggressive tax avoidance scheme’, which exploits Employment Allowance, a scheme introduced by the government in April 2014 to encourage small businesses to take on more workers.

Employment Allowance, allows eligible businesses to claim £2,000 off their annual employer’s National Insurance contributions. However, undercover recording by the BBC has revealed widespread abuse of this allowance operating from within the recruitment industry.

It found more than two thousand bogus companies created by recruitment agencies, purely for the purpose of claiming back national insurance. One promoter of the scheme was captured stating that one agency could save up to £300,000 a year, potentially depriving the treasury overall of tens of millions of pounds.

Speaking to the Today programme, Margaret Hodge criticised the government for using the tax system to encourage small businesses to increase the number of people they employ. She said that: ‘If you use the tax system to do that, inevitably somebody will come along and find that as an opportunity to avoid tax.’

Hodge also called for a long overdue simplification of the tax system, and for more money to be invested into HMRC in order to crack down on tax avoidance advisers.