HMRC told to ‘step up and fulfil its responsibilities’ on payslip fraud by industry veteran

Dave Chaplin, CEO of IR35 tax compliance firm IR35 Shield, said: “HMRC’s new guidance appears to admit two uncomfortable things.

“Firstly, that payslip fraud is happening and HMRC knows about it; and secondly, that it may be struggling to resource the enforcement needed to tackle it, because workers are effectively being asked to check whether their own tax and National Insurance has been paid correctly.”

Most workers will neither read nor fully understand this guidance, said Mr Chaplin.

He added: “They reasonably expect their agency or payroll provider to get their pay right. The fact that HMRC feels the need to issue this advice suggests that confidence in the supply chain is misplaced.

"Isn’t it time outsourced payroll providers, including umbrella companies, were subject to proper, legitimate regulation, perhaps through a body with the authority and teeth of the Financial Conduct Authority (FCA)?

"We saw with the loan charge (a controversial tax policy which was recently the subject of a review) how workers could ultimately be blamed when things went wrong. Where are the enforcement bodies that should be protecting them?”

Crawford Temple, CEO of Professional Passport, the independent assessor of payment intermediary compliance, said he was frustrated by HMRC’s lack of enforcement within the sector and “its failure to make full use of the tools and data already available to it”. He added: “HMRC has access to huge volumes of information. Cross-referencing that data could provide significant intelligence, helping identify non-compliance, anomalies and businesses that warrant investigation.

"It is frankly ludicrous that this intelligence is not being used more effectively.

"For many years, we have seen a proliferation of legislation and regulation as policymakers try to keep pace with the changing world of work.

"Yet this catalogue of legislation has also created unintended consequences and failed to address some of the fundamental challenges facing the contracting sector and supply chain – particularly transparency, compliance and enforcement.

"This latest guidance effectively passes the responsibility to workers who simply want to know they can trust their agency or umbrella provider to get their pay right. That is not the worker’s job. HMRC needs to step up and fulfil its responsibilities.”

An HMRC spokesperson said: “Payslip fraud is a serious issue and, as well as alerting workers to warning signs to watch out for, we’re taking robust action to tackle it. We actively deregister non-compliant umbrella companies for VAT, take legal action against fraudulent employment practices used to avoid tax, and launch criminal investigations in the most serious cases.”

The spokesman stressed that HMRC is using the full range of powers available to tackle fraud, including making arrests, recovering tax from supply chains that knew, or should have known, about fraudulent activity, and working with trade bodies and government partners to raise awareness.

“Everyone has a role to play in identifying and preventing tax fraud, including honest workers who may be targeted by those seeking to exploit the system,’’ the statement added.

“Publishing guidance for workers does not replace enforcement activity. We continually strengthen our approach to tackling tax fraud through enforcement action, updated guidance, improved systems and legislative change. We will continue to pursue those responsible while supporting people to recognise and report suspicious activity.”

HMRC has increased the number of compliance staff by more than 2,400 since the Autumn Budget 2024, the statement added.

"We are ahead of our plan to grow compliance capacity by an additional 5,500 officers by 2030. We expect employment agencies to take reasonable steps to understand how the workers they supply are engaged and paid.”