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Outsourced labour payroll fraud (formerly payroll company fraud) is the movement of workers and payroll responsibilities from a legitimate business, to another business.

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

Legitimate businesses are often unaware of any fraud.

You need to be aware of outsourced labour payroll fraud if you:听听

• are outsourcing your workforce or payroll听
• are a recruitment or employment agency听
• work for one company but are paid by another听
• work for an agency听

Outsourced labour payroll fraud is part of a wider group of organised crimes involving the supply of labour, known as organised labour fraud.

How it works and how to spot it

Signs of outsourced labour payroll fraud include:听

• payroll companies requesting that an established business transfers staff to them听
• savings on payroll and labour costs that seem too good to be true听
• a payroll company with a similar name to the business听
• irregular payment arrangements, such as requesting that you make a payment to a third party听
• offers to refund administrative costs, a service also known as 鈥榤ilestone kickbacks鈥�
• no physical presence at the registered office address听
• no online presence or website听

If you鈥檙e an employer or agency

If you have outsourced your workforce you should:听

• carry out鈥�due diligence checks鈥痮n your supply chain听
• understand what service you鈥檙e being supplied听
• be clear who pays your workers and how they鈥檙e paid听
• question your supplier if you have concerns听

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

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

Check your supplier听

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

You should:

• check a company鈥檚 VAT registration with HMRC
• check who holds the contracts of employment for your staff
• ask for evidence of鈥�RTI鈥痳eturns and the payments made to HMRC

Understand the supply you receive

You need to understand the type of supply you receive.听It may be a supply of:

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

If you know the type of supply you receive,听you鈥檒l be able to work out听the correct treatment for VAT purposes.听

Fraudsters often lie about the supply of labour to make the VAT seem higher than it should be, maximising illegal income.

We are aware of a model of outsourced labour payroll fraud which involves the 鈥榓ssignment鈥� or 鈥榯ransfer鈥� of workers鈥� contracts of employment to fraudulent entities, without any change in the terms and conditions of those contracts.

Our view is that this does not work. You may wish to seek independent legal advice on the arrangement.

If you鈥檙e involved in 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.听

Check if you鈥檙e an employment intermediary听

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

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

If you need to send voluntary reports听

鈥�Tell HMRC about your payroll outsourcing arrangements.

HMRC will check if the company submits the correct returns听and pays the right amount of tax and National Insurance contributions.

If you鈥檙e a worker听

You may be a victim of outsourced labour payroll fraud if your employer outsources their workforce.

Check your employment rights if:听

• you鈥檙e an agency worker听
• 测辞耻谤鈥�employment contract is transferred to another company听

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 set up your own company, sometimes called a personal service company.听

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 测辞耻谤鈥�personal tax account.听

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

You can鈥�鈥痶o the Pensions Regulator.

If you鈥檙e an agency worker or contractor, and work through an umbrella company, you can:

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

Reporting potential fraud or tax avoidance

You can report tax fraud online if you have concerns about:

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

How it can affect your business

If we find that a business either knew or should have known about fraud in the supply chain, 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, including interest.

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