Policy paper

Tax fraud warning for employment agencies and employers: tax credits reducing liabilities for employers

Published 14 November 2025

Introduction

This briefing explains how HMRC is raising awareness of new fraudulent models which are being marketed to employers and recruitment agencies offering ‘cheaper’ payroll services. Organised crime groups are particularly active in the temporary employment agency and recruitment sector.

We are here to help you stay clear of fraudulent arrangements that could significantly cost your business.

HMRC is aware that businesses are being approached by organisations offering models which falsely claim to be able to reduce employment costs through ‘tax credits’ offset from third party businesses they have acquired. The organisations offering these models may call themselves, but not exclusively, payroll providers, intermediaries, umbrella solutions or back-office providers.

These organisations falsely claim that they can acquire businesses that have tax credits on file with HMRC, which may include businesses in pre-administration. They claim to use the tax credits to offset employment taxes, such as PAYE and National Insurance due to HMRC by operating the payroll and, as a result, can reduce the amount you need to pay.

Often in these arrangements none of the taxes due to HMRC are being paid. They do this by simply not paying the taxes over to HMRC or creating false documents to give the impression that the appropriate returns are made to HMRC and the taxes paid over.

How these models are marketed

These models claim to work in different ways and might offer different payroll solutions, such as joint employment, co-employment or Professional Employer Organisation (PEO) options.

All the models seen so far advise potential customers and users that the tax credits are HMRC verified and can be used to offset tax liabilities. HMRC do not approve models or schemes and businesses should be wary of anyone claiming they have HMRC approval for any arrangements they may be offering.

Some providers claim that these arrangements are ‘not tax avoidance’ and therefore must be ‘compliant’ but HMRC considers these arrangements tax evasion.

Marketing materials may claim that the model will fall outside of the new umbrella company legislation due in April 2026, however, this will not be the case. The rules from 2026 will make sure that agencies will be liable for any underpayment of tax on workers PAYE.

Why you should not use these arrangements

If you sign up to one of these models you and your business could be at risk, because you are ultimately responsible for ensuring that your business pays the correct amount of tax and National Insurance contributions.

In addition to any fees these organisations may charge you, if HMRC consider these tax credits have not been correctly claimed it may result in your business paying back the tax originally offset, interest, and perhaps penalties.

If HMRC finds VAT losses relating to these models you may also find that you also lose your right to deduct input tax if you, as a business, knew or should have known about the connection with fraud.

Where appropriate, HMRC will also consider the behaviours of those involved for criminal prosecution – HMRC’s criminal investigation policy.

What you should do

You should always undertake your own robust due diligence.

You should seek independent professional advice before signing up to a model where tax credits are used to reduce the amount of tax and National Insurance your business pays for workers undertaking work for you.

You should not rely on the fact you were told that the arrangements are fully tax compliant.

You should watch out for the signs this fraudulent model is being marketed to you:

• third parties, such as a joint employment, co-employment, Professional Employer Organisation (PEO) or other intermediaries offering models that claim to offset your tax liability using tax credits
• using tax credits obtained by acquiring companies in financial difficulty or maybe in pre administration
• accounting models that claim to avoid the umbrella legislation starting on 6 April 2026
• models that claim they are HMRC approved
• models that claim they are Kings Counsel (KC) approved
• incentives or ‘kick back’ payments for using the model being offered

If you think you may already be using these types of models HMRC offers a range of ways to notify us How to make a disclosure to HMRC. We can help you get back on track.

Report a concern

If you’re concerned about an organisation offering you a tax saving model as described above, or unpaid Income Tax, NICs or VAT, you can report it to us.

You can report tax avoidance, evasion and fraud arrangements or schemes and the person offering you them to HMRC using our report tax fraud or avoidance online form.

You can submit this form anonymously and do not have to give your name, address or your email.

You can phone HMRC to report tax fraud or avoidance if you cannot use the online form.

HMRC is committed to tackling fraud and will continue to use its full range of criminal and civil powers to stop fraud and take action against those who break the rules.