MTIC FRAUD – OUTSOURCING PAYROLL SERVICES

The outsourcing of Payroll services is being increasingly linked to Missing Trader (MTIC) Fraud.

In its simplest form, a company (Company A) will outsource its payroll work to another payroll company (Company B).

Company B will invoice for its services and Company A will pay the amount plus VAT. Company B, as it had always planned to, either goes missing or defaults without paying the VAT to HMRC.

The fraudulent outsourcing is not always restricted to one company and several companies can be involved in outsourcing through complex supply chains designed to frustrate HMRC’s investigations.

Just like MTIC fraud in other industries, if HMRC believe that Company A knew, or should have known, of the connection to fraud, they will deny them the right to reclaim the input VAT on Company B’s invoices.

This not only results in substantial VAT Assessments being raised, sometimes running into the millions of pounds, but often creates a personal liability for the company Officers

The personal liability can occur in 2 ways.

1.     If the directors of Company A do not challenge the allegation that they knew, or should have known, of a fraud and simply liquidate the company, it will be taken that they did know of the fraud. Liquidators are then able to recover the full amount of the lost VAT from them personally.

2.     HMRC will also automatically raise a company penalty (set at 30% of the lost VAT) and, if the company is unable to pay it, the Officers of the company are liable for the full 30%, subject to mitigating circumstances.

We are involved in such cases where VAT Assessments have already been raised (and where a Tribunal appeals are in progress) and cases that are actively being investigated by HMRC.

Both situations need careful management, and I would be happy to advise on such matters.

Further information on MTIC fraud in general can also be found on our website.