HMRC has asked employers to take extra care when engaging labour through supply chains.
The latest Employer Bulletin warns that HMRC is aware of increasing levels of fraud in labour supply chains and with companies offering payroll services. It acknowledges that, although most of these services are used legitimately, it “would like employers to take extra care when engaging with these services”.
The Bulletin explains that payroll company fraud, at its most basic, occurs when a business transfers staff and payroll responsibility to a fraudulent payroll company who supply the staff back to the business. In cases where these payroll companies are fraudulently operating, the necessary payments to HMRC for Income Tax, National Insurance Contributions or VAT will not be made.
HMRC warned that these practices are not limited to specific sectors or business types, and that any business can be targeted where there is a need for a payroll function. However, it noted that those firms with a weak financial position were most vulnerable to offers to cut in-house payroll costs by accepting a cheap payroll service.
“The fraudsters can offer cheap services as, ultimately, they’re stealing the tax and National Insurance contributions,” notes the Bulletin.
HMRC highlights that co-employment arrangements and mini umbrella companies are also areas where this type of fraud can occur. It warned that: “If it can be shown that your company knew, or should have known, that transactions in your supply chain are linked to fraud you may lose the right to recover VAT you paid on these transactions. Additionally, in some cases, you may also still be liable for any unpaid tax or National Insurance.”
To protect your business HMRC recommends undertaking sufficient and proportionate due diligence checks when entering into an arrangement with a payroll company or an umbrella company to ensure that it is legitimate.
For more on this issue, read the June edition of the Employer Bulletin.
