HMRC have published an issue briefing to raise awareness of tax fraud for employment agencies and employers. HMRC warn that new fraudulent models, offering cheaper payroll services, are currently being marketed to employers and recruitment agencies.
The model currently being marketed falsely claims to reduce employment costs, such as PAYE and National Insurance (NI), for businesses, through the offset of ‘tax credits’.
HMRC have confirmed there has been a rise in models marketed by organised crime groups who claim to be able to provide cheaper payroll services. Typically, these arrangements are active in the temporary employment agency and recruitment sector.
- The organisations offering these models are often called payroll providers, intermediaries, umbrella solutions or back-office providers.
- They falsely claim to have acquired businesses, often in pre-administration or financial difficulty, that have tax credits on file with HMRC.
- They then claim that, by operating the payroll, they can offset those tax credits against liabilities due to HMRC.
More often than not, the PAYE and NIC which is due is not paid over to HMRC. False documents are often created to give the impression that appropriate returns are being submitted.
HMRC have confirmed that they consider this type of model to be Tax evasion.
If tax credits have been incorrectly claimed by a business, HMRC will require the business to pay back any underpaid tax, along with interest and possible penalties.
HMRC have provided some assistance to help employers and agencies spot a fraudulent model. They recommend being alert to:
- Any model being offered by a third party, such as a joint employment, co-employment, Professional Employer Organisation (PEO) or other intermediaries.
- Any mention of tax credits being obtained by acquiring a business in pre-administration or financial difficulty.
- Models claiming to be approved by King's Counsel or HMRC.
- Incentives or kickback payments.
- Models that claim to avoid the Umbrella legislation.
HMRC have urged anyone who thinks they may be using a fraudulent model to contact them and report it. It is advised that they also seek professional advice.
Useful guides on this topic
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Agency workers: Employment intermediaries rules (subscriber version)
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HMRC's Spotlights
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