Many workers employed across the £37bn NHS test-and-trace service are being paid through networks of opaque small companies that experts fear could be defrauding the Treasury via a notorious tax scheme. The Guardian investigated after sources working at Covid-19 call centres, testing sites, mobile testing units and laboratories raised concerns about their payslips and employment terms. Headed by the Conservative peer Dido Harding, NHS test and trace has become one of the biggest sources of new jobs during the pandemic, with a workforce of 50,000. Most of its staff are supplied not by the National Health Service, but by outsourcing giants including Serco and G4S, and dozens of recruitment agencies in a broad contracting network. Tax experts and unions fear weak controls by outsourcers and government agencies, and a complex chain of companies supplying labour for the service, which was created from scratch a year ago, have raised questions over the transparency of the system and left it wide open to abuse. The scheme – which involves what are known as mini umbrella companies (MUC), often fronted by directors in the Philippines – allows employers to dodge their national insurance contributions, and is estimated to cost the taxpayer hundreds of millions a year. The Gangmasters & Labour Abuse Authority says it can result in the loss of employment rights for workers. Problems can include being repeatedly placed on an emergency tax code, so that already low-paid staff are charged more tax than they owe and have to reclaim it at the end of the year. Some staff have reported problems with holiday pay. “Those who lose out are vulnerable workers and the taxpayer,” said Tim Sharp, senior employment rights officer at the Trades Union Congress. “Exploitative schemes centred on umbrella companies are going unchecked thanks to loopholes in the law, weak worker rights and inadequate state enforcement. There is mounting evidence that abuses previously seen in sectors like construction are now spreading to other sectors, including services ultimately funded by taxpayers,” he said. Unusual payroll patterns Interviews with staff and managers, and material including contracts and payslips, suggest unusual payroll patterns in the NHS test-and-trace workforce: staff say people on the same teams have been split into groups of one, two or three, and they claim each was paid through a separate small company. Workers report being shunted from one company to another every few months. One former test-and-trace call handler in Yorkshire said she would receive a P45 redundancy notice and a new job contract every time, despite no actual change to her day-to-day job. “It was really odd,” she said. “They would change without notice.” At one point, the name of her employer changed twice in a fortnight. In December HM Revenue and Customs warned about the practice, saying: “Every business which either places or uses temporary labour should be aware of the potential dangers posed to their business by mini umbrella company (MUC) fraud in their supply chain”. It said the companies were being used to abuse government incentives aimed at small businesses, by unlawfully claiming discounts on VAT and national insurance taxes. “Most MUC arrangements are considered to be fraudulent,” the tax office claimed. The act of setting up a mini umbrella company is not illegal, and some are created for legitimate reasons. However, many are used to exploit a tax break known as employment allowance. Worth up to £3,000 per company a year until April 2020, rising to £4,000 during the pandemic, it is supposed to give start-up businesses and small traders a discount on the national insurance contributions they make for each staff member. In practice, staff are being moved to a new mini umbrella company as soon as the allowance is used up – which could mean employers avoid ever having to pay their share of national insurance. Government guidance states employment allowance cannot be claimed by a business doing more than half its work in the public sector. Test-and-trace sources have named at least 30 companies which appear to fit the pattern of mini umbrella companies. Further analysis of the UK corporate registry at Companies House suggests they share an address with hundreds of other similar entities. In total, our analysis shows almost 8,000 entities which appear to have the characteristics of mini umbrella companies, both active and recently dissolved, at 23 separate addresses across the country. The office locations include a former Conservative club in Todmorden, where more than 500 companies are registered, a terrace house in Huddersfield hosting more than 200 entities, and a bungalow in Prestatyn with more than 300. ‘Companies House is just a big filing cabinet’ Not all of these will have been used for pandemic-related work. A separate BBC investigation said as many as 48,000 were created in the last five years. Mini umbrella companies have become endemic across a range of industries, with agencies employing workers in construction, schools, warehouses and factories reported to have used them. The Guardian has not seen evidence that the companies named by test-and-trace workers claimed employment allowances. However, their use raises concerns about the transparency of the supply chains headed by government contractors, and the due diligence carried out by those outsourcing firms and recruitment agencies receiving public money. HMRC warned their use is on the rise and that businesses should be vigilant: “As an end user or provider of temporary labour it is your responsibility to be clear about who ultimately pays the workers and how they are paid.” If 8,000 companies had claimed the employment allowance at least once, the cost to the exchequer would be at least £24m. Government data suggest all employment allowance claims cost the Treasury about £2.5bn in 2019-20. Prem Sikka, emeritus professor of accounting at the University of Essex and a member of the House of Lords, said the findings highlighted the need for reform and penalties for giving false information to Companies House, the UK corporate register. “Companies House is just a big filing cabinet,” he said. “We have no central enforcer of company law. That’s the problem.” He added: “One big question is if the government is doing test-and-trace contracts, what on earth did they do for due diligence?” The mini umbrella companies in the test-and-trace supply network appeared to follow a similar pattern to those flagged by HMRC. They were typically formed within the last three years – many have started since the beginning of the pandemic. They appeared to have randomly generated names – examples that shared addresses with companies used to pay test-and-trace staff include Aeonofwhitewashing Limited, Truthfulmystica Limited and Surprisingmachine Limited. All were nominally controlled by directors based in the Philippines or India, and they were all UK registered. All of those who spoke declined to be identified for fear of losing their jobs. The Guardian has not named the companies directly used to employ the workers in order to protect their identities. “Umbrella companies are part of a broader pattern of growth in insecure work and long labour market supply chains, and difficulties that workers have in understanding what their rights are, or enforcing them,” said Sharp at the TUC. The Guardian has seen evidence that workers hired via mini umbrella companies were part of supply chains that included the agencies Ant Marketing, CC33 and HR GO. These agencies were among a number of sub-contractors supplying test-and-trace staff for larger businesses which hold government contracts, including the FTSE 250 outsourcing group Serco, and the security company G4S. A spokesperson for Ant Marketing said: “Ant does not condone or engage in any practices which constitute tax avoidance or tax fraud and is fully compliant and observant with all relevant statutory obligations and HMRC regulations. Ant is treating the information you have provided with the utmost seriousness and has voluntarily notified HMRC so that it can cooperate with any investigations that HMRC may deem it appropriate to undertake.” A spokesperson for CC33 said: “Neither CC33 nor any party associated to CC33 implemented arrangements of the type or nature described. “Staff used by CC33 in the delivery of the contact-tracing services were either employed directly by CC33 or were engaged through an external recruitment company with which CC33 has a longstanding relationship. “The recruitment agency which provided staff to CC33 for the contact-tracing campaign has confirmed that staff provided were paid through an external payroll provider. Having made inquiries of the payroll provider, the recruitment agency has confirmed to CC33 that the staff it provided were not paid through a mini umbrella company arrangement.” Serco provided more than a quarter of the NHS testing sites and half of the call handlers tracing contacts of people who had tested positive for Covid-19, according to its annual report. Serco confirmed it relied on as many as 24 subcontractors to recruit staff. A company spokesperson said all of its suppliers had signed its code of conduct, which specifically forbids practices that would result in the “tax evasion or dilution of workers’ rights”. “The rates that we pay all our suppliers include minimum rates of pay, holiday pay, employers’ national insurance and the apprenticeship levy and all of our suppliers charge us standard rates of VAT. “We have been assured that the workforce themselves have been paid the correct rates of pay, but if employer contributions and taxes that we have paid to our suppliers are not being passed on to the authorities by anyone within our supply chain it would be of grave concern and without our knowledge. If any part of our supply chain are found to have used practices which we regard as inappropriate, in which we would include MUC’s, they will be stopped forthwith and reported to HMRC,” they said. A G4S spokesperson said: “When this practice came to our attention, HMRC was notified and we have taken decisive action to ensure that all our agency workers are employed directly by the approved company, and not via a subcontractor.” A spokesperson for HR GO said: “HR GO strongly rejects any suggestion that it engages in illegal, fraudulent or exploitative behaviour. “We are satisfied that the way in which we manage our supply chain is legal and in harmony with guidance from HMRC. Where we outsource our labour requirements, we conduct regular and detailed due diligence on our supply chain partners to ensure the credibility, legitimacy and legal/tax compliance of suppliers, clients, employees, and labour supply arrangements.” Employers have a responsibility to audit their labour supply chains to look out for fraud. HMRC guides state: “Failure to perform reasonable due diligence checks can lead to significant legal, financial and reputational risks to your business.” HMRC on Monday updated its guidance after being approached by the BBC and the Guardian. An HMRC spokesperson said it had recently deregistered more than 22,000 mini umbrella companies who it believed were exploiting the scheme. A Department of Health and Social Care spokesperson said: “We carry out due diligence on all direct contractors and we take these checks very seriously. “We will take action if we become aware of any inappropriate practices by the supplier or any of their subcontractors.” ‘It seemed like there were hundreds of them’ As the pandemic started, finding a job in some sectors became nearly impossible, so for one worker in Yorkshire whose job was reliant on face-to-face interaction, securing paid work from home was a relief. Answering an advert for call handlers, she learned she would be employed at the heart of the pandemic, contact-tracing on Serco’s behalf. “It felt like we had joined the war effort,” she said. That mood soon soured. An “awful collective mentality” of targets took over, she said. Amid the tensions an odd pattern emerged: staff thought they were working for an agency, Sheffield-based Ant Marketing, but their payslips said differently. As many as 20 different employers were evident on the payslips of a single team, all of them with bizarre names. “It was really odd. It seemed like there were hundreds of them,” she said. “They would change without notice.” Once, the employer named on her payslips changed twice in a fortnight. Workers shared their concerns with each other, and then with bosses. “If you asked they would say, ‘It doesn’t affect your job’”. She said holiday pay arrived months late, and the complications of shifting employer multiple times caused chaos in her tax calculations. She eventually moved to a different job unrelated to the pandemic, but remains angry about what happened. ‘We were all paid by different companies’ Working in a government mobile testing van, the team would shuttle between car parks located in towns in Cambridgeshire. The vehicles, loaded up with PCR testing kits and 10 staff members, were there to instruct the public on how to use the kits and then swab themselves for the virus. Like many other parts of the pandemic response, the contract for these pop-up sites was being run by G4S and its recruitment partner HR GO. It was not long before the workers noticed some unusual names on their payslips. Concerned, one of them reported the details to the Revenue. “We discovered that we were paid by little companies – and we were all paid by different ones,” she said. “All micro companies with a single Filipino director. One of my colleagues didn’t get paid one week. When they got paid it was by a different company. There must be thousands of them. I have told HMRC.” ‘How can these Filipino residents get these contracts?’ Sitting in an unheated tent in a town in the north-west was perhaps not the ideal job, the test site worker said, but as customers cancelled projects at the start of the pandemic it seemed better than just “waiting for everything to start up again”. The site was run by G4S, and was set up to handle as many as 500 tests a day, although it peaked a couple of hundred below that. As case numbers have reduced the testing has slowed to a daily trickle. The worker said he was recruited by HR GO, which also dealt with payslip queries and approved holiday requests, but he claimed others at the site were employed by different companies. He says he was paid for a few months by one company, then received a new, identical contract for another. There was added confusion, he said, when data on Companies House showed their employers – whose names they had never heard – were resident 6,800 miles away in the Philippines. “We were thinking, hang on a minute, how can these people who are Filipino residents get these contracts,” he said.