One of the biggest players in the labour agency field has won a key tax battle that will safeguard the operation of the agency system in the UK.

Accountant Gabem, which helps workers to set up as tax-efficient one-man firms, was stripped of its CIS5 (subcontractor’s tax certificate) status in July last year.

This meant it could no longer operate in this way without excessive costs which threatened the labour agency system, as most agency workers use Gabem’s services.

Now the firm has received approval from HM Revenue and Customs to receive gross payments from clients, overturning the previous decision. This will draw criticism from unions, who believe that so-called “composite companies”, such as Gabem, encourage false self-employment.

A Ucatt spokesperson said: “We rely on the compliance unit at HM Revenue & Customs (HMRC) to ensure workers are treated appropriately and classified correctly. We do adopt a sceptical approach, as in the past the employment rights of workers have been diluted by composite companies.”

We are sceptical, as the employment rights of workers have been diluted by composite companies

Ucatt spokesperson

Gabem is one of the largest composite or managed service companies in the industry, registering up to 11,000 workers as single-person limited companies and handling their payment and tax affairs.

The company appealed unsuccessfully on three occasions against HMRC’s decision but the government has finally relented.

Trudy Gordon, the managing director, said: “We have worked hard to convince HMRC of our willingness to comply with all our obligations under the [2003-2004] Taxes Act resulting in the awarding of gross status.”