HMRC has published new guidance warning workers and businesses about payslip fraud and organised labour fraud.
Payslip fraud happens when a worker receives a payslip showing that Income Tax or National Insurance has been deducted, but those amounts have not been paid to HMRC. A similar problem can occur when a Construction Industry Scheme (CIS) deduction statement shows deductions that haven’t been passed on correctly.
The payslip or statement may look entirely genuine, meaning the problem can remain hidden for some time.
How can workers be affected?
Workers might only find out that something is wrong when they check their tax records, apply for a benefit or try to claim a tax repayment. Missing or incorrect deductions can affect entitlement to Statutory Sick Pay, maternity or paternity pay and Universal Credit. They could also leave gaps in a worker’s National Insurance record, reduce their eventual State Pension or result in an unexpected tax bill.
For CIS subcontractors, deductions that have not been reported or paid correctly may cause problems when they try to claim a repayment or offset the deductions against their tax liability.
Is your labour supply chain creating a hidden risk?
The issue tends to affect businesses that obtain workers through agencies, umbrella companies, payroll companies or use layers of subcontractors.
Long labour supply chains can make it difficult to see who employs each worker, who operates payroll and who is responsible for paying deductions to HMRC. Although your own business may be operating correctly, weaknesses or fraud elsewhere in the chain could still disrupt projects and harm relationships with workers.
It may also create reputational damage if individuals working for your business discover that deductions shown on their payslips have not reached HMRC.
Warning signs can include workers being moved repeatedly between payroll companies, changing employer names on payslips, vague admin deductions or take-home pay that does not match the hours worked. Missing payslips, loss of access to payroll portals and promises of unusually high take-home pay should also prompt further questions.
What can SMEs do?
It’s vital to understand who every organisation involved in supplying and paying your workforce is. Checks should always be completed before appointing an agency, contractor or payroll provider, rather than relying solely on a competitive price or professional-looking documentation.
Contracts should clearly identify who employs and pays workers and who is responsible for tax, National Insurance and CIS deductions. Businesses should also have a process through which workers can raise concerns.
Where CIS arrangements apply, accurate verification, deduction and payment records should be maintained. This evidence may be essential if HMRC raises questions later.
If your business uses agencies, temporary workers, umbrella companies or subcontractors, we can help you review your tax and payroll arrangements. Contact our friendly team to find out more.