Check for signs of outsourced labour payroll fraud
How to identify and report outsourced labour payroll fraud (sometimes called ‘payslip fraud’) if you’re a worker, employer or agency.
How outsourced labour payroll fraud works
Outsourced labour payroll fraud (sometimes called ‘payslip fraud’ or ‘payroll company fraud’) 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’re more likely to be affected by outsourced labour payroll fraud if you:
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work for an agency
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work for one company but get paid by another
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are outsourcing your workforce or payroll
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are a recruitment or employment agency
How outsourced labour payroll fraud can affect you
As a worker
If you’re a worker, a business involved in outsourced labour payroll fraud may not pay the right tax and National Insurance to HMRC on your behalf.
This means you may not be able to get:
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benefits like Universal Credit
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maternity or paternity pay
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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:
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deny your business the right to recover VAT input tax
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hold your business responsible for unpaid Income Tax or National Insurance contributions, including any interest
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charge VAT penalties to your business and people in charge — for example, directors or managers
What to check if you’re a worker
You should check for signs of outsourced labour payroll fraud if you get paid through an agency, umbrella or payroll company. For example — 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’re 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:
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sign in to your personal tax account
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use the HMRC app
Other signs to look for
Other signs of outsourced labour payroll fraud could be if you:
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are told that you’ll get your full pay, without tax taken off (gross pay)
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can no longer see your payslips, or sign in to your employer’s payslip portal
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are asked to set up your own company (sometimes called a ‘personal service company’)
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are suddenly moved to a different umbrella or payroll company
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struggle to get benefits a company offers, like voucher or pension schemes
Know your employment rights
Check what your employment rights are, if:
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you’re employed as an agency worker
What to check if you’re an employer or agency
General signs of outsourced labour payroll fraud include:
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payroll companies asking an established business to transfer staff to them
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savings on payroll and labour costs that seem too good to be true
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a payroll company with a similar name to the business
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unusual payment arrangements, like payments to a third party
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offers to refund administrative costs, a service also known as ‘milestone kickbacks’
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no physical presence at the registered office address
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no online presence or website
If you’ve outsourced workers or payroll
If you’ve outsourced your workers or payroll responsibilities from another business, you should:
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carry out checks on your supplier
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understand what service they’re supplying
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make sure you know who pays your workers and how they’re paid
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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.
Keep a detailed record of all the checks you carry out.
Check your supplier
You should:
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check a company’s VAT registration with HMRC
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check who holds the contracts of employment for your staff
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ask for evidence of Real Time Information (RTI) returns and payments made to HMRC
Understand the service you’re getting
You need to understand what service you’re getting from your supplier. It may be:
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labour only
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payroll services only
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labour with payroll services
If you know what you’re getting, you’ll 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’ contracts to fraudulent companies, without any change in terms and conditions.
If you’re involved in an arrangement like this:
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you may not be able to deduct VAT input tax for the cost and may have to repay it to HMRC
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you should get independent legal advice on the arrangement
Tell HMRC about your payroll outsourcing arrangements. We’ll check if the company submits the correct returns and pays the right amount of tax and National Insurance contributions.
Report outsourced labour payroll fraud to HMRC
You should report outsourced labour payroll fraud to HMRC if you have concerns about:
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an employer or agency you’re working for
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a supplier of labour or payroll services
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unpaid Income Tax and National Insurance contributions
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unpaid VAT
You will not need to give us your personal details when you make a report.
Watch a video about outsourced labour payroll fraud
Outsourced labour payroll fraud.
You’ll learn about:
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how fraudulent companies in the supply chain operate
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the impact of National Insurance contributions not being paid to HMRC
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your responsibility to understand who pays the workers and how they’re paid
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the importance of completing regular checks and keeping detailed records
Updates to this page
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Information about using the HMRC app to check your tax code and other details has been added to the section use ‘What to check if you're a worker’.
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A link to watch a video about outsourced labour payroll fraud has been added.
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The 'If you're a worker' section has been updated to add information about working as an agency worker or contractor through an umbrella company.
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The heading 'How payroll company fraud can affect your business' has replaced 'If you do not report payroll company fraud'. This change is for clarity and accuracy.
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First published.