Labour supply chain compliance: HMRC target security services providers

HMRC’s letter states that, under typical arrangements, HMRC expect security workers to be treated as employees for income tax and social security purposes, with salary payments made subject to PAYE and NIC being withheld and paid over to HMRC. However, HMRC also state that criminals operating complex labour supply chain frauds are targeting security services providers in all sectors, and unlawfully retaining PAYE and NIC withheld from workers’ pay.

HMRC’s letter asks recipients to take the following steps by a stated deadline:

• Ensure security workers are correctly registered for PAYE and NIC;
• Make sure their pay fully accounts for PAYE and NIC; and
• If other parties provide the letter’s recipient with security workers, confirm which entity in the labour supply chain should operate payroll withholding on the workers’ earnings (e.g. the letter’s recipient, or another security company, agency, or recruitment company).

The letter advises that security services providers who might need to correct any previous filings with HMRC might still be able to make an unpromoted disclosure (which has the potential to mitigate any penalties HMRC might otherwise impose for any inaccuracies identified). 

The fact that HMRC’s letters request specific actions by a set deadline suggests the possibility of a follow up HMRC review.

Businesses that receive a ‘nudge’ letter should therefore confirm, as a matter of urgency, whether they can demonstrate that the relevant employment tax withholding obligations are met throughout their labour supply chains. Security services providers who have not yet received a ‘nudge’ letter should also consider these issues to ensure they are well prepared should a letter arrive.

HMRC’s letter also directs the recipient to published HMRC guidance on labour supply chain assurance and applying supply chain due diligence principles. However, that HMRC guidance addresses labour supply chain risks beyond employment tax and social security withholding compliance. For example, it also touches on the National Minimum Wage (with the risk of public naming for even accidental non-compliance), excluding non-compliant umbrella companies from the labour supply chain, employment status for tax, off-payroll working compliance, and preventing the criminal facilitation of tax evasion. On that basis, recipients of HMRC’s letter should also consider a broader review of how they manage their labour supply chain risks.

The letters KPMG in the UK have seen invite action, but not a direct response to HMRC. However, giving some form of assurance to the relevant HMRC Customer Compliance Manager (CCM), or other HMRC contact, that the points in HMRC’s letter have been addressed should be considered.

We can help guide you through the best practice for risk controls and processes to support your business and develop more robust systems to withstand HMRC’s scrutiny. Please contact the authors of this article or your usual KPMG in the UK contact to discuss further.

For further information please contact:

• Chris Verri
• Paul Moreels