So many payroll firms have sprung up in the last few years using ‘off the shelf’ – or copied – contracts of self-employment that leave their clients at serious risk from the financial implications of a failed HMRC status inspection. 

Then lately, there are those who even use sham contracts, designed to disguise themselves as contractors rather than payroll intermediaries, in the hope of avoiding regulation.  HMRC is fast becoming wise to these scams, and OEI legislation introduced in 2014 is making life very difficult for these firms, who now understand that their days are numbered.

The unfortunate upshot is that every month, payroll companies are being sold on and cashed in. The tell-tale sign is a change of name, or for the existing directors to resign and be replaced by a new, young and enthusiastic individual . . . but the newcomers are often unaware they have been set up for a fall and could end up taking the blame for a well-planned fraud.

Don’t be a loser

When a payroll company goes bust there are generally three main losers:

1. The client who has sent a week’s payroll
2. The operatives who may have unwittingly had their CIS deductions siphoned off for months, and will be unable to complete an end-of-year self assessment
3. HMRC who will not take their losses lightly, and have legal powers to recover their money from client and operatives alike

If you are in any doubt about the stability of the payroll service that you use, or have been caught out recently and wish to find a legitimate home for your business, please get in touch and we’ll do our utmost to help.

Last week, we were called by a subbie who we’ve paid in the past.  This time round, the company he was working for sent money to their payroll company in all good faith . . . but between the payment being made and the processing of the earnings to send to the subbie, the payroll company vanished. 

The knock-on effect

The subbie – and probably others like him – are now minus any earnings for their week’s work, and we can only sympathise with the impact this has on his personal finances and family. 

But it doesn’t end there.

What about the tax that’s due on the payment?  And when a payroll company does a runner in these circumstances, what are the chances that HMRC has received the tax for all the other payments that have been made during this tax month – or previous months?   And that’s before we even think about the VAT . . .

The bottom line with the payroll company no longer in existence, responsibility rests with the client and the freelancer.

Ongoing monitoring is now key

Even if your due diligence initially threw up no red flags, things can change, so it’s essential to run regular checks to see if anything has changed.

In particular, if your payroll provider tells you to change the bank account you are paying into if or the people at the top are replaced, it’s time to ask questions and be extra vigilant. There could be a valid reason, but it’s definitely worth investing a few minutes of your time to dig a little deeper and make sure you don’t get ripped off.