State school teachers employed by tax-avoiding firm
An offshore company employing thousands of teachers is avoiding the payment of millions of pounds in employer's National Insurance contributions.
ISS Ltd, based in the Channel Islands, employs more than 24,000 temporary agency workers across the UK, most of them working as supply teachers.
ISS says it is "meticulous in complying with HMRC codes on taxes and expenses".
HM Revenue & Customs says schools, councils or employment agencies could be liable for the shortfall.
End Quote Richard Murphy Tax Research UK
The UK can't afford this tax loss and it can't afford so many households being put at tax risk. This is a scandal waiting to break”
The BBC's 5 live Investigates programme has discovered that thousands of supply teachers working in the UK are paid by Sark-based International Subcontracting Solutions Ltd (ISS).
ISS is a payroll company - sometimes known as an "umbrella" company - which pays the salaries and expenses of workers who find jobs through recruitment agencies in the UK.
The arrangement means that temporary workers, such as supply teachers, are the employees of ISS.
Because ISS is based offshore it does not pay employer's National Insurance contributions - but neither do the UK-based recruitment agencies that find the jobs for staff paid by ISS.
This could add up to many millions of pounds in unpaid tax. For example, for a supply teacher on a daily rate of £160, around £90 per week is not being paid to HMRC in employer's National Insurance contributions.
HMRC says that the UK-based employment agency through which the workers are supplied, or alternatively the end-user company, such as the school or local education authority, could be treated as the employer and therefore be liable for the unpaid National Insurance contributions.'Effective enforcement'
This raises the prospect of HMRC having to pursue other public sector bodies and employees for the lost revenue.
Find out more
Listen to the full report on 5 live Investigates on BBC 5 live on Sunday, 4 November at 21:00 GMT
ISS told the BBC that HMRC had no grounds to challenge its employees or business partners.
But the consultancy firm Professional Passport, which advises the recruitment industry on tax issues, says a lack of enforcement has encouraged the growth of offshore umbrella companies.
"We don't need more rules, or different rules, just effective enforcement of the existing rules," Professional Passport director Crawford Temple told 5 live Investigates.
"If these are proving too difficult to enforce then they should be reviewed and amended as a priority," he added.
End Quote HMRC
We are actively pursuing a growing number of investigations against these types of arrangements”
Director of Tax Research UK Richard Murphy says the growth of umbrella companies is "the next big UK tax scandal".
Mr Murphy told the BBC: "The UK can't afford this tax loss and it can't afford so many households being put at tax risk. This is a scandal waiting to break."
The government also stands accused of having ignored the problem despite warnings.
Professional Passport wrote to Treasury minister David Gauke in July 2011 to point out the "potentially embarrassing" issue of public sector agency workers being employed by offshore umbrella companies.
Mr Temple says he is yet to receive a response.
"Mr Cameron was quick to use moral arguments when celebrities were utilising tax avoidance strategies, yet his own ministers failed to take any action, or even respond, when we highlighted serious tax avoidance issues directly to them on a number of occasions."
HMRC told the BBC that employers had a legal responsibility to operate PAYE and should question very closely anyone offering quick-fix tax and National Insurance arrangements.
"We are actively pursuing a growing number of investigations against these types of arrangements.
"The HMRC has already successfully pursued a number of companies for tax, National Insurance and interest where they were not playing by the rules."