Graphic showing cartoon figures in laptop screens, one of whom is a thief in disguise
Check for signs of payroll company fraud

Payroll company fraud is big business for criminals, but often goes undetected by employers until HMRC comes knocking for unpaid Income Tax or National Insurance Contributions - or seeks to disallow VAT on service invoices paid to the payroll company.

But what is payroll company fraud?

Payroll company fraud happens when a legitimate business transfers their staff and payroll responsibilities to a fraudulent company, which does not declare or pay the correct taxes to HMRC.

Criminals set up payroll companies and approach legitimate businesses, offering to take on their staff and payroll responsibilities, usually for a fee. However, these payroll companies then create false Real Time Information (RTI) returns for HMRC, and false payslips for workers. While these documents will show Income Tax and National Insurance contributions being deducted, the tax due is not paid across to HMRC. Such a payroll company may also fail to account for the VAT due on their invoices or make false VAT returns to HMRC.

Payroll company fraud is not easy to detect, but there are some tell-tale signs to look out for including:

  • savings on payroll and labour costs that seem too good to be true.
  • irregular payment arrangements with the payroll company, such as requesting that you make a payment to a third party.
  • a request from the payroll company that you transfer staff to them.
  • an absence of a physical office address, online presence or website for the payroll company.
  • the payroll company has a similar name to your business.

If HMRC suspect that a business should have known about a payroll fraud, the employer may be held responsible for any unpaid Income Tax or National Insurance Contributions and have to pay interest. HMRC may also deny the business the right to recover VAT input tax on invoices from the payroll company, and even charge a penalty of up to 30% on the denied input tax. 

Employers looking to outsource their payroll therefore should carry out due diligence on any prospective payroll company and be clear what services are being supplied, who will pay the workers, how they will be paid and who will deal with RTI filings. An employer who suspects that there is fraud, can report their concerns to HMRC.  

 

This article reflects the position at the date of publication (13 April 2023). If you are reading this at a later date you are advised to check that that position has not changed in the time since. 

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