What

Outsourced labour payroll company fraud is

Payroll(formerly payroll company fraudfraud) is whenthe amovement legitimateof businessworkers transfers their staff and payroll responsibilities from a legitimate business, to another business.

It is part of a fraudulent company,supply chain, which does not declare or pay the correct taxes to HMRC.

Legitimate Thebusinesses legitimateare business is often unaware of any fraud.

It’s part of a wider group of crimes known as organised labour fraud.

You need to be aware of payrolloutsourced companylabour payroll fraud if:if you:  

• you outsource or are considering outsourcing your workforce or payrollpayroll 
• you’reare a recruitment or employment agencyagency 
• you work for one company but are paid by anotheranother 
• you work for an agencyagency 

How payroll company fraud works

CriminalsOutsourced setlabour up payroll companiesfraud andis approachpart legitimateof businesses, offering to take on their staff and payroll responsibilities, usually for a fee.

Thewider businessgroup willof then:

• transferorganised itscrimes employeesinvolving to the payroll company
• pay them the gross wages and related VAT

The payroll company will then supply theof workerslabour, backknown toas theorganised business.labour They’ll often make false Real Time Information (RTI) returns to HMRC.fraud.

They

How mayit issueworks false payslips to workers showing that Income Tax and Nationalhow Insurance contributions have been deducted from their wages. However, this is often not paid to HMRC.

Theyspot will then fail to account for the VAT due or make false VAT returns to HMRC.

it

TheSigns payroll company will eventually cease trading and transfer the workers to another fraudulent payroll company.

Recognising signs of payrolloutsourced companylabour fraud

Some common signs of payroll company fraud include:include: 

• a payroll companycompanies requesting that youan transferestablished business transfers staff to themthem 
• savings on payroll and labour costs that seem too good to be truetrue 
• no physical office address
• no online presence or website
• a payroll company with a similar name to the businessbusiness 
• irregular payment arrangements, such as requesting that you make a payment to a third partyparty 
• offers to refund administrative costs, a service also known as ‘milestone kickbacks’
• no physical presence at the registered office address 
• no online presence or website 

If you’re an employer or agency

If youryou businesshave has outsourced itsyour workforce it’syou your responsibility to:should: 

• carry out out due diligence checks on on your supply chainchain 
• understand what service you’re being suppliedsupplied 
• be clear who pays your workers and how they’re paidpaid 
• question your supplier if you have concernsconcerns 

This is not a definitive list. The checks you need to take will depend on what your business doesdoes, and how it operates.operates. 

You should keep a detailed record of all the checks you do.do. 

KnowCheck your suppliersupplier 

You should check a company’s VAT registration with HMRC.

Fraudulent payroll companies may operate alongside several others, all providing connecting services, such as issuing invoices.

You shouldshould:

• check a company’s VAT registration with HMRC
• check who holds the contracts of employment for your staff.
  staff
• ask for evidence of RTI returns and the payments made to HMRC

Understand the supply you receive

You shouldneed alsoto askunderstand the type of supply you receive. It may be a supply of:

• labour only 
• labour with payroll services 
• payroll services only 

If you know the type of supply you receive, you’ll be able to work out the correct treatment for evidenceVAT purposes. 

Fraudsters often lie about the supply of RTIlabour returnsto andmake the paymentsVAT madeseem higher than it should be, maximising illegal income.

We are aware of a model of outsourced labour payroll fraud which involves the ‘assignment’ or ‘transfer’ of workers’ contracts of employment to HMRC.fraudulent entities, without any change in the terms and conditions of those contracts.

TheyOur view is that this does not work. You may offerwish to refundseek yourindependent administrativelegal costs,advice aon servicethe alsoarrangement.

If knownyou’re asinvolved ‘milestonein kickbacks’.an arrangement like this, you may not be able to deduct VAT input tax for the cost and may be asked to repay it to HMRC. 

Check if you’re an employment intermediaryintermediary 

If you supply workers to a client, you may be an employment intermediary.intermediary. 

You should should check if you need to send employment intermediary reports.. 

SendIf you need to send voluntary reportsreports 

You can  tellTell HMRC about your payroll outsourcing arrangements.

HMRC canwill then check if the company:

• company submits the correct returns
• returns and pays the right amount of tax and National Insurance contributions

contributions.

If you’re a workerworker 

You may be a victim of payrolloutsourced companylabour payroll fraud if your employer outsources their workforce.

YouCheck can check your employment rights if:if: 

• you’re an agency worker 
• your your employment contract is transferred to another company  

You may get a false payslip showing that Income Tax and National Insurance contributions have been deducted. However, this may be different to what HMRC has been told, and it is often not paid.

You may also be told that you will be paid gross or encouraged to HMRC.set up your own company, sometimes called a personal service company. 

This can have long-term consequences on your entitlement to state pension and other benefits.

You can check what information is being reported to HMRC through your your personal tax account.. 

Criminal companies may also claim to offer benefits that you struggle to access, such as voucher schemes and pension schemes.

You can can report concerns about your workplace pension scheme to to the Pensions Regulator.

How

If toyou’re reportan agency worker or contractor, and work through an umbrella company, you can:

• read more about how and what you’ll be paid
• use our tool to work out pay from an umbrella company

Reporting potential fraud or tax avoidance

ContactYou HMRCcan to report tax fraud online if you have concerns about:

• a supplier
• unpaid Income Tax and National Insurance contributions
• unpaid VAT

How payrollit company fraud can affect your business

If we find that a business knew,either knew or should have known,known about fraud in the supply chainchain, we may:

• deny the businesses in the supply chain the right to recover VAT input tax
• charge a penalty for transactions connected to fraud

You may be held responsible for any unpaid Income Tax or National Insurance Contributions,contributions, including interest.

We may also transfer VAT penalties to individuals, such as a director or manager of the company.