Piles of papers on a desk, magnifying glass resting on its side on the top and magnifying "Tax Fraud" written on a folder in the background
Safeguard Your Payroll: Don’t fall for fake ‘Tax Credit’ schemes

HMRC has issued a new Tax Fraud Warning aimed at employers, recruitment agencies and others involved in the temporary labour market.

Organised crime groups are increasingly targeting this sector with payroll models that promise reduced employment costs, often framed as access to “tax credits” that can be used to lower PAYE and National Insurance Contributions (NIC) liabilities.

Why do employers need to know?

Engaging with these schemes, even unknowingly, can leave your business exposed to significant financial, legal and operational risks.

HMRC is clear that these models are fraudulent. Employers and agencies who use them can become liable for the full unpaid tax/NIC, penalties, and interest, even if the scheme was promoted by a third-party payroll provider. Reputational damage, disrupted payroll operations, and loss of workforce trust are additional, very real consequences.

These schemes are being marketed by organisations presenting themselves as payroll providers, umbrella companies, intermediaries, or back-office solution firms. They claim to acquire businesses, sometimes those in administration, that allegedly hold unused tax credits with HMRC. They then assert that they can offset these supposed credits against the PAYE and NICs due on your payroll, enabling them to offer “cheaper” employment costs.

Despite these promises, HMRC reports that in many cases no taxes are being paid at all. The operators simply fail to pay liabilities to HMRC, or fabricate documentation to appear compliant. Businesses using these services often only discover there is a problem when HMRC begins enforcement action.

What should employers do?

  • Be vigilant: Any payroll offer that claims to significantly reduce PAYE or NICs through third-party tax credits should be treated as a red flag.
  • Check your supply chain: Ensure payroll and umbrella providers are transparent, compliant and appropriately audited.
  • Act immediately if concerned: If you think you may already be using one of these models, HMRC provides confidential routes to make a disclosure and get your PAYE compliance back on track.
  • Report fraud: Employers can use HMRC’s online reporting tool to flag suspected fraudulent schemes or promoters.

Staying informed and conducting proper due diligence are essential to protecting your organisation. HMRC’s full Tax Fraud Warning briefing provides further detail on how these schemes operate and how to safeguard your business.

 

This article reflects the position at the date of publication. 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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