News
Payroll company enters liquidation as HMRC makes £58m tax claim
09 - 07 - 2013
Edinburgh-based employment agency, Employ E – previously known as Legal E – has gone into liquidation after HMRC submitted a claim against the company for £58m in unpaid taxes and penalties.
It is the second company run by struck-off lawyer David Allen to enter liquidation in recent months. In May, Legatis Group, which offered an outsourced payroll service for agencies and temporary workers, went bust owing over £22m to its creditors.
Legitas, which operated a controversial tax avoidance scheme known as a ‘payday by payday tax relief model’, switched its employees to PAYE following an audit conducted by HMRC. However, the move came too late to prevent the payroll company from going under.
A payday by payday tax relief scheme means that tax-free expenses payments are made to workers as a benefit not included in their wage, allowing employers to claim tax relief which is then not paid back to the worker in full.
Such schemes, which critics say exploit vulnerable temporary workers; have come under increased scrutiny from HMRC in recent times.
According to Claire Middlebrook, an insolvency partner with accountants Henderson Loggie, who was appointed liquidator of both companies,
Legitas owed £22.56m to Employ E before the payroll company went under.
She recently said that she expects the amount Legitas owes HMRC is ‘significantly higher’ than the £40,000 advised to her by the company directors.
‘We note the directors’ statement of affairs confirms a small debt due to HMRC; however, it is our opinion that this debt will be significantly higher,’ she said.
‘The director David Allen has commenced the process of placing Employ E Ltd into creditors’ voluntary liquidation and the creditors will be notified shortly.
‘I am also not aware of any other insolvency practitioner being appointed over the other companies.
‘In respect of the debt to HMRC, as part of our investigation we will establish what debts are outstanding to HMRC and to confirm the full creditors’ position of Legitas Group Ltd,’ she added.
A spokesperson for HMRC said he was unable to comment on the affairs of individual taxpayers but said that the ‘pay day by pay day tax relief model' does not comply with tax and National Insurance legislation and can fail to meet the requirements of National Minimum Wage legislation.
‘In July 2011, HMRC set out the Department's view on these arrangements, being operated by some employers, which seek to grant tax and National Insurance "relief" each time a worker is paid.
‘We have made it clear that we will challenge appropriate cases where we believe the rules are being broken,’ he added.
