KITTEL/MTIC FRAUD – OUTSOURCING PAYROLL SERVICES

KITTEL/MTIC FRAUD – OUTSOURCING PAYROLL SERVICES

Criminals are increasingly establishing payroll firms that target legitimate businesses, creating sophisticated fraud schemes that can expose innocent companies to significant HMRC assessments and personal liability.

How the Fraud Works

Criminals establish payroll firms and approach businesses, offering to handle their payroll and labour supply requirements. Once engaged, they:

• Create false RTI (Real Time Information) returns submitted to HMRC
• Generate false payslips showing deductions for PAYE, National Insurance, and other statutory amounts
• Fail to pay the taxes that have supposedly been deducted to HMRC
• Generate false VAT returns, either under-declaring output VAT or over-claiming input VAT

The businesses using these services believe that their payroll obligations are being met, when in reality the taxes are never reaching HMRC.

Warning Signs

Businesses should be alert to the following warning signs when engaging payroll providers:

• Fees that are too good to be true compared to legitimate providers
• Short-lived providers that have only recently been established
• No physical premises or verifiable business address
• Mismatched payment methods that do not align with normal commercial practice
• Minimal online presence or professional credentials

Consequences for Businesses

When HMRC identifies the fraud, the consequences for the businesses that used these providers are severe:

HMRC disallows input VAT claimed on invoices from the fraudulent provider, resulting in substantial assessments covering all affected periods.

Personal director liability can arise through two mechanisms:

1. Liquidation of the company, which HMRC may treat as an admission of the debt
2. Automatic 30% penalties that can be transferred to directors personally through Personal Liability Notices

These consequences can be devastating for businesses that were unwitting participants in the fraud. Early specialist advice is essential to protect both the business and its directors.