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:
- Liquidation of the company, which HMRC may treat as an admission of the debt
- Automatic 30% penalties that can be transferred to directors personally through Personal Liability Notices
Further information can be found on our Kittel & VAT Disputes page.
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.
Frequently asked questions
How does payroll outsourcing MTIC fraud work?
Criminals set up payroll firms and offer to handle a business's payroll and labour supply. They submit false RTI returns to HMRC, issue false payslips showing PAYE and National Insurance deductions, fail to pay those taxes, and file false VAT returns. The client business believes its payroll obligations are being met when the taxes never reach HMRC.
What are the warning signs of a fraudulent payroll provider?
Businesses should be alert to fees that are too good to be true compared with legitimate providers, providers that have only recently been established, no physical premises or verifiable business address, payment methods that do not align with normal commercial practice, and minimal online presence or professional credentials.
What happens to a business that used a fraudulent payroll company?
When HMRC identifies the fraud, it disallows the input VAT claimed on invoices from the fraudulent provider. This can result in substantial assessments covering all affected periods, and the consequences can be devastating even for businesses that were unwitting participants in the fraud.
Can directors be personally liable for payroll MTIC fraud?
Yes. Personal director liability can arise through liquidation of the company, which HMRC may treat as an admission of the debt, and through automatic 30% penalties that can be transferred to directors personally by Personal Liability Notices. Early specialist advice is essential to protect both the business and its directors.
