MTIC Fraud – Outsourcing Payroll Services

MTIC Fraud – Outsourcing Payroll Services

Missing Trader Intra-Community (MTIC) fraud involving outsourced payroll services is an increasingly common scheme that HMRC is actively targeting. Understanding how these schemes operate is essential for businesses that outsource their payroll functions.

How the Scheme Works

The typical structure involves the following:

Company A outsources its payroll operations to Company B. Company B invoices Company A for its services, charging VAT on those invoices. Company A pays the invoices, including the VAT element, and reclaims the input VAT on its VAT return.

Company B then goes missing or defaults on its obligations without ever paying the collected VAT over to HMRC. The VAT charged to Company A is never remitted to the Exchequer.

Complex Supply Chains

In more sophisticated arrangements, the scheme can involve multiple companies operating through complex supply chains. This adds layers of transactions designed to obscure the fraudulent element and make it more difficult for HMRC to trace the connection between the legitimate business and the defaulting trader.

HMRC’s Response

If HMRC determines that Company A knew or should have known that its transactions were connected with fraud, they will deny Company A’s right to reclaim the input VAT paid on the payroll invoices.

Consequences

The consequences for businesses caught up in these arrangements can be severe:

• Substantial VAT assessments covering all periods in which the fraudulent supplier was used
• Personal director liability through the liquidation of the company, which HMRC may treat as an admission of the debt
• Automatic 30% penalties applied to the assessed amounts, which can also be transferred to directors personally

Businesses that outsource payroll services should exercise thorough due diligence on their suppliers and seek specialist advice if they have any concerns about the legitimacy of their supply chain.