A recruitment firm has warned against agencies using 'umbrella companies' to payroll temporary staff.

HM Revenue and Customs (HMRC) has issued a caution as a growing number of non-compliant organisations are promoting tax avoidance schemes.

These schemes can expose victims to financial penalties and reputational harm.

Supertemps, a recruitment firm based in Colwyn Bay and Bangor, has urged people to 'be wary'.

The schemes target contractors and temporary employees who may be unaware of the risks.

Warning signs include economic incentives that are unusually high compared to industry standards, inconsistent payslips, payments to third parties, and offshore addresses

Sarah Ellwood, managing director of Supertemps, said: "All our workers are PAYE and payrolled internally, so our processes are water-tight, but we have heard horror stories from other companies, and this issue is very topical.

"These umbrella companies can do a lot of damage, not only to the reputation of a recruitment agency but also that of end employers, and there can be financial penalties and tax implications for both."

Under new powers introduced in 2022, HMRC can publish information if they suspect 'enablers' are involved in promoting a tax avoidance scheme or playing a role in making a scheme available.

The UK Government recently explored options to address non-compliance, including penalties for agencies failing to carry out mandatory due diligence.

Ms Ellwood said: "There are a lot of steps business owners, procurement and HR departments and employees can take to protect themselves and make sure staff are being paid correctly.

"Checking the HMRC list of named tax avoidance schemes, promoters, enablers and suppliers, and reporting anything untoward is crucial, as is taking a close look at your supply chain and ensuring any agencies you use are operating legally and ethically.

"If this is not the case, it could have repercussions on the agency, the end employer and worker.

She added: "Ultimately, as recruitment agencies we have a duty of care to our clients and our workers and must operate within the law and with the highest ethics to protect both.

"If you are being offered workers at hourly rates that seem significantly cheaper then you need to question why.

"If you are not handling payroll in-house, look at the practices and background of the businesses that are on your behalf, take precautionary steps and do not leave your organisation open to potential legal and financial exposure."

For more information, visit 'Working through an umbrella company' on the GOV.UK website.