If you work via an agency or umbrella company, check your payslip immediately. That’s the message from tax authority HMRC, which has issued an urgent warning to 700,000 flexible workers this week.
They reason that just because Income Tax and National Insurance appear as deducted on your payslip, it does not mean the taxman ever received your tax payments.
Critics argue the call for action is an embarrassing admission. Arguably, by urging contractors to police their own deductions, HMRC effectively admits payslip fraud could still be rife.
For example, HMRC analysis shows that umbrella companies were used to engage at least 700,000 workers in 2022 to 2023. This shows that at least 275,000 of these workers, and likely significantly more, were engaged at some point in 2022 to 2023 by umbrella companies that failed to comply with their tax obligations.
“It is frankly ludicrous that this intelligence is not being used more effectively,” says Crawford Temple, CEO of Professional Passport, noting HMRC already sits on vast troves of data through RTI and monthly intermediary reporting.
Dave Chaplin, CEO of IR35 Shield, demands urgent intervention: “Isn’t it time outsourced payroll providers, including umbrella companies, were subject to proper, legitimate regulation, perhaps through a body with the authority and teeth of the Financial Conduct Authority?”
Seb Maley, CEO of Qdos, acknowledges why the tax authority has turned to the workforce for help:
The sheer scale and size of the market means that as things stand, I don’t think it can police it alone. Plus, HMRC will always rely on people sounding the alarm over non-compliance.
Who gets stuck with the bill for unpaid tax?
Under Joint and Several Liability rules, the legal target is shifting away from contractors and onto rogue providers and recruiters. These reforms are “designed to stop a tax avoidance scheme from disappearing into thin air and leaving the worker with a massive tax bill,” Maley explains. “The worker won’t be HMRC’s first port of call.”
However, workers remain exposed in other ways. Missing records can still quietly wreck your statutory sick pay, parental leave, and future State Pension.
In a semi-related risk contractors should be aware of, during HMRC’s annual P800 tax reconciliation exercise, workers could mistakenly receive tax calculation demands caused by rogue payroll figures.
Maley tells The Freelance Informer that while a P800 does not automatically transfer an employer’s unpaid PAYE liability onto you, workers must stay alert: “Workers should nevertheless check any P800 carefully and challenge it where the figures do not match their payslips, P45 or P60, or where an apparent shortfall seems to result from an employer’s failure.”
How to protect yourself against payslip fraud
Firstly, make sure your tax code has been calculated accurately. Enter your gross pay and tax code into HMRC’s online tax estimator tool. Don’t know your tax code or want to make sure your umbrella is using the correct one? Here is HMRC’s guidance on codes and how to check if your payslip is correct
Secondly, match the estimate to the tax deducted on your payslip.
Thirdly, verify your personal account by logging into the HMRC app or your Personal Tax Account online. Do this to confirm that the tax recorded as received by HMRC matches the deductions on your payslips.
If the numbers clash, call and enquire with your employer immediately. If, when challenged, they do not immediately respond or correct any mistake, then contact HMRC for guidance.
Red flags to watch out for:
- If you ever see any unexplained admin adjustments, and especially any sudden changes in take-home pay
- Always note company names on your payslip and make sure they are consistent
- If an umbrella company loses access to your online payslip portal out of the blue, that is cause for concern