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How outsourced labour payroll fraud works

Outsourced labour payroll fraud (sometimes called 鈥榩ayslip fraud鈥� or 鈥榩ayroll company fraud鈥�) is when a legitimate business transfers their workers and payroll to another business which does not declare or pay the correct taxes to HMRC. The legitimate business is often not aware of any fraud.

You鈥檙e more likely to be affected by outsourced labour payroll fraud if you:

• work for an agency聽

• work for one company but get paid by another聽

• are outsourcing your workforce or payroll聽

• are a recruitment or employment agency

How outsourced labour payroll fraud can affect you

As a worker

This means you may not be able to get:

• benefits like Universal Credit

• maternity or paternity pay

• your full State Pension

As a businesses

If HMRC find that your business knew (or should have known) about fraud in the supply chain, we may:

• deny your business the right to recover VAT input tax

• hold your business responsible for unpaid Income Tax or National Insurance contributions, including any interest

• charge VAT penalties to your business and people in charge 鈥� for example, directors or managers

What to check if you鈥檙e a worker聽

You should check for signs of outsourced labour payroll fraud if you get paid through an agency, umbrella or payroll company. For example 鈥� you work as a delivery driver for a business, but get paid by a different company.

Check your payslips

False payslips make it look like your employer has paid the correct tax and National Insurance on your behalf, when they have not.

Check with HMRC to make sure the tax and National Insurance on your payslip is correct.

You should also check that you鈥檙e on the correct tax code. Checking this can help you to avoid overpaying now or facing an unexpected tax bill later.

For help with this, you can:

• sign in to your personal tax account

• use the HMRC app

Other signs to look for

Other signs of outsourced labour payroll fraud could be if you:

• are told that you鈥檒l get your full pay, without tax taken off (gross pay)

• can no longer see your payslips, or sign in to your employer鈥檚 payslip portal

• are asked to set up your own company (sometimes called a 鈥榩ersonal service company鈥�)

• are suddenly moved to a different umbrella or payroll company

• struggle to get benefits a company offers, like voucher or pension schemes

Know your employment rights

Check what your employment rights are, if:

• you鈥檙e employed as an agency worker

• your employment contract is transferred to another company

What to check if you鈥檙e an employer or agency

General signs of outsourced labour payroll fraud include:

• payroll companies asking an established business to transfer staff to them

• savings on payroll and labour costs that seem too good to be true

• a payroll company with a similar name to the business

• unusual payment arrangements, like payments to a third party

• offers to refund administrative costs, a service also known as 鈥榤ilestone kickbacks鈥�

• no physical presence at the registered office address

• no online presence or website

If you鈥檝e outsourced workers or payroll

If you鈥檝e outsourced your workers or payroll responsibilities from another business, you should:

• carry out checks鈥痮n your supplier

• understand what service they鈥檙e supplying

• make sure you know who pays your workers and how they鈥檙e paid

• question your supplier if you have concerns

You may need to carry out other checks as well. This will depend on what your business does, and how it operates.

Check your supplier

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鈥疪eal Time Information (RTI) returns and payments made to HMRC

Understand the service you鈥檙e getting

You need to understand what service you鈥檙e getting from your supplier. It may be:

• labour only

• payroll services only

• labour with payroll services

If you know what you鈥檙e getting,聽you鈥檒l be able to work how much VAT you should be paying. Fraudsters often lie about the supply of labour to make VAT seem higher than it should be.

Transfer of worker contracts

One type of outsourced labour payroll fraud involves the assignment or transfer of workers鈥� contracts to fraudulent companies, without any change in terms and conditions.

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 have to repay it to HMRC

• you should get independent legal advice on the arrangement

Report outsourced labour payroll fraud to HMRC

You should report outsourced labour payroll fraud to HMRC if you have concerns about:

• an employer or agency you鈥檙e working for

• a supplier of labour or payroll services

• unpaid Income Tax and National Insurance contributions

• unpaid VAT

Watch a video about outsourced labour payroll fraud

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You鈥檒l learn about:

• how fraudulent companies in the supply chain operate

• the impact of National Insurance contributions not being paid to HMRC

• your responsibility to understand who pays the workers and how they鈥檙e paid

• the importance of completing regular checks and keeping detailed records