Schools or local authorities could have to foot the bill for millions of pounds in National Insurance (NI) contributions as a result of hiring supply teachers via recruitment agencies which use off-shore firms, the taxman warned today.
Such companies do not have to pay employer's NI contributions because they are based off-shore.
But according to HM Revenue & Customs (HMRC), this arrangement could leave "the end client or the employment businesses" liable to foot the bill.
An HMRC spokesman said: "These kinds of arrangements are not compliant with tax and National Insurance legislation and the end client, or the employment businesses, may be liable for any underpaid tax and National Insurance.
"Employers have a legal responsibility to operate PAYE and should be questioning 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, and have already successfully pursued a number of companies for tax, National Insurance and interest where they were not playing by the rules."
ISS, based in the Channel Islands, pays the salaries of more than 24,000 temporary agency workers in the UK, mostly supply teachers, according to an investigation by BBC Five Live.
The temporary workers are recruited for UK schools by agencies, but are employed by ISS, in a legal scheme.
ISS, because it is based offshore in Sark, does not pay employer's NI contributions. But neither do the UK recruitment agencies, according to the BBC.
ISS could not be reached for comment but told the BBC the company is "meticulous in complying with HMRC codes on taxes and expenses".
The company also said HMRC had no grounds to challenge its employees or business partners.
The company website says ISS works with over 900 recruitment agencies in the UK and "consistently pay the highest net pay in the market".
According to the website, "ISS is an employment business, often referred to as an umbrella company. ISS is able to provide contractors with a more tax effective salary package than an agency. ISS operates a high quality and tax efficient payroll structure, which allows you to maximise your pay, whilst maintaining a full UK tax record."
The website said ISS specialises in providing temporary workers for agencies and "end clients" in the UK.
"This allows agencies to focus on securing quality placements whilst ensuring that the contractor receives all the benefits of working with ISS," it said.