Out-Law Analysis | 22 Apr 2020 | 9:41 am | 2 min. read
Law enforcement agencies had already stepped up their intervention activities against a new breed of payroll company frauds before the coronavirus struck, but recent surges in recruitment in the likes of supermarket retail and healthcare could leave some employers at risk without sufficient due diligence.
With HM Revenue & Customs (HMRC) losing up to £60 for every £100 paid to a false payroll company, the numbers soon stack up and speed is therefore of the essence - so much so that the Crown Prosecution Service (CPS) in England and Wales has announced an expedited interim charging protocol (7-page / 138KB PDF) for Covid-19 related matters.
Recent surges in recruitment in the likes of supermarket retail and healthcare could leave some employers at risk without sufficient due diligence.
It is not uncommon for businesses to seek to outsource all or part of their payroll and other back office functions to specialist providers for a host of commercial reasons. The majority of these payroll services companies are of course entirely legitimate, and able to provide specialist professional services along with a genuine respite from associated administrative burdens.
However, law enforcement agencies increasingly believe that organised crime gangs have spotted an opportunity to seek dishonest advantage and have established, or acquired, agencies which have many of the hallmarks of legitimacy and which charge commercially appropriate rates but which, under that façade, fail to remit the required salary 'deductions' to HMRC.
This brazen and initially invisible fraud leaves individual workers liable for unpaid personal taxes and National Insurance contributions, and their employers exposed to strict criminal liability by virtue of failing to prevent the faux agency - notionally providing services on their behalf - from facilitating tax fraud.
Fraudulent entities will likely present valid looking paperwork to companies commissioning their services but will either fail to submit, or submit minimal, returns to HMRC. Different iterations of the basic fraud may involve the organised crime gang further sub-contracting its 'services' to a succession of often similarly-named mini 'umbrella companies' registered at the same address, which is normally unconnected with their trading activity. These companies may in turn be de-registered or 'phoenix' owing additional VAT.
Forensic intelligence reviews of potential third party suppliers can help prevent companies from outsourcing to illegitimate organisations and individuals in the first instance. This is achieved by conducting specialist reviews of the third party's finances, ownership structure and reputational standing in the market, and with domestic and international regulators.
Applying data analytics can further assist in monitoring existing relationships with structured analysis of disbursement data, which will quickly and efficiently flag potentially suspect or unauthorised transactions on the company's behalf. Maintaining an automated audit of these steps will greatly assist in future discussions with regulators and HMRC.
The tax fraud and forensic experts at Pinsent Masons, the law firm behind Out-Law, understand the systems and various MOs in play and can carry out timely enhanced due diligence for those considering this type of outsourcing, checking a range of specialist date sources to prevent fraud at this time of economic upheaval. They will also ensure that control frameworks put in place by the engaging business are closely aligned to the UK government's six guiding principles for the creation of reasonable preventative procedures, giving increased comfort to legitimate businesses.
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