HMRC warns employers to stay vigilant as supply chain fraud increases in the labour market.

HMRC warns employers to stay vigilant as supply chain fraud increases in the labour market.

(Read time: 1 min)

In their latest Employer Bulletin, HMRC delivers a frank warning to employers to avoid arrangements with payroll companies which might constitute fraud.  Fraud by payroll companies occurs when a business engages a payroll company to undertake responsibility for payroll. If this payroll company doesn’t make the necessary payments for income tax, NIC or VAT to HMRC then it will be operating fraudulently.

Unfortunately, these types of schemes/models are on the rise, in particular schemes involving co-employment and mini umbrella companies.

Why should employers be worried? 

Whilst it can be difficult for employers to recognise these fraudulent companies, ignorance is no excuse. If HMRC can demonstrate that a company knew or should have known that they were engaging with a fraudulent payroll company then that company can be liable for unpaid taxes and/or National Insurance, not to mention the reputational damage which comes from being under investigation by HMRC.

This can be particularly difficult for companies in financial trouble as these fraudulent companies are often the ones offering the cheapest service.  They can offer such a cheap service as they’re pocketing the tax and National Insurance contributions.

How can employers protect themselves? 

In order to protect your company from repercussions, HMRC recommends that you conduct due diligence which is “sufficient” and “proportionate”. You need to be certain that:


If you think that a business in your supply chain is engaging in fraudulent activities, this should be reported to HMRC immediately. You can do this online by visiting the website and finding the page “Contact HM Revenue & Customs”.


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