Supply chain fraud can manifest itself in many forms. Here we will concentrate on payroll services.
Due Diligence when Choosing a Payroll Provider
HMRC have recently issued a warning in their Employer Bulletin 78. The warning relates to supply chain fraud in payroll services/providers.
It warns employers to undertake the following. Sufficient and proportionate due diligence checks when engaging companies offering payroll services.
Although most businesses offering payroll services are legitimate, some are not.
HMRC is aware that there have been some instances of fraud recently. Those involved have been targeting businesses in a fragile financial position. They have been able to engage the businesses by offering extremely cheap payroll services.
How does this type of Supply Chain Fraud take place?
HMRC have stated that this type of fraud can be done in various ways. They state that it’s most basic form is as follows. Once a business transfer’s all payroll responsibilities and staff over to the fraudulent company. The fraudulent company supply the staff back to the business.
The fraudulent payroll company will not make the necessary payments to HMRC. This can be in the form of, Income Tax, National Insurance Contributions (NICS) or VAT.
Other Fraud Models
HMRC have also stated they have been made aware of other models. Such as Co-Employment Models. Mini-Umbrella Companies. These are all areas where employers must be extra vigilant.
HMRC have cited there are many potential risks for employers. They will be at risk of being unable to recover VAT. They will be liable for any unpaid taxes. Reputational harm that could compromise commercial relationships, plus many others.
The only way to mitigate the risks involved is to ensure all employers undertake Sufficient and proportionate due diligence checks.
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