Massive Tax Scheme: Over 40,000 Filipinos Recruited by UK Companies Costing Hundreds of Millions in Lost Taxes

Posted on 11 May 2021

More than 40,000 individuals from the Philippines have been enlisted by British companies as part of schemes that have cost the UK "hundreds of millions of pounds" in lost taxes, according to BBC Radio 4's File on 4. The investigation revealed that over the past five years, more than 48,000 of these companies have been established. Some employees at Covid test centres operated by G4S have been engaged through subcontractors involved in these schemes. G4S has notified HMRC after becoming aware of the issue and is taking measures to ensure the direct employment of agency workers, avoiding subcontractors.

One individual referred to as "John," found employment at a local Covid testing site run by G4S through an employment agency called HR GO. However, upon receiving his payslip, he discovered that he had been paid by an unfamiliar company recently established with a director from the Philippines. This raised suspicions for John, as he realized he was employed in a convoluted manner.

Recruitment agencies exploit the government's Employment Allowance, a £4,000 annual discount on National Insurance contributions per company, by employing temporary workers through a series of small umbrella companies known as "MUCs." Each MUC has a limited number of workers and qualifies for tax relief. However, these arrangements can lead to significant tax revenue losses for the taxpayer, amounting to hundreds of millions annually. HMRC had cautioned against such practices as early as 2015, describing them as "too good to be true" and ineffective.

G4S stated that it works with accredited employment agencies and ensures appropriate national insurance contributions are included in its payments to agencies. HR GO claimed that its supply chain management complies with legal requirements and HMRC guidance.

File on 4 discovered that more than 48,000 "mini umbrellas" have been established in the UK over the past five years, following a specific pattern. These companies initially incorporate British directors recruited through private Facebook groups. After a short period, these directors resign, and Filipino directors are appointed in their place. This tactic makes it more challenging for HMRC to pursue companies with directors in other jurisdictions.

The investigation revealed that tens of thousands of Filipinos from impoverished regions are recruited through Facebook and word of mouth. The only requirements for the job are an internet connection, a mobile phone number, an email address, and an ID document. These individuals review and sign the documents of British companies through an online portal operated by Compass Star Limited.

One Filipino director, who chose to remain anonymous, stated that he signed up to support his wife and child, finding it easy and financially beneficial. However, he couldn't recall the name or activities of the company he directs.

These companies fronted by Filipinos are then utilized to employ workers in the UK, including supply teachers and Covid testers.

Tax QC and founder of the Good Law Project, Jo Maugham, described the number of companies established in this manner as "staggering" and emphasized that it constituted industrial-scale tax abuse. Anneliese Dodds, former shadow chancellor, urged HMRC and the government to take stronger action against these schemes.

HMRC stated that it is employing both criminal and civil powers to combat what it refers to as "MUC fraud." It recently deregistered over 22,000 mini umbrella companies suspected of involvement in such schemes, made several arrests, and pursued recovery of unpaid taxes from businesses aware or should have been aware of the fraud in their supply chain.

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