HMRC Warning to Recruitment Industry: How to Avoid Fraudulent Payroll Schemes

In the fast-moving recruitment sector, new payroll solutions and cost-saving ideas appear every day. But recently, HMRC issued a clear and important warning to employers and agencies about the rise of fraudulent payroll schemes being marketed as “tax-efficient models”.

At QUBA Solutions, we support agencies across the UK, so we want to break down what this means for your recruitment business, and how to stay safe from fraud disguised as innovation.

What is HMRC warning about?

According to HMRC, certain providers are targeting the recruitment industry with payroll models claiming to reduce PAYE and National Insurance liabilities using “tax credits” from other acquired companies. These schemes can look convincing, but HMRC has confirmed these arrangements are not legitimate and may amount to tax fraud.

The providers behind these models often present themselves as:

• Umbrella companies
• Payroll intermediaries
• Back-office support providers
• “Tax-credit payroll solutions”

Despite their branding, HMRC stresses that any model claiming to offset your liabilities using tax credits from another company is high-risk, non-compliant, and potentially fraudulent.

Why recruitment agencies need to be extra vigilant

The recruitment sector is often targeted by tax-avoidance promoters because of high worker volumes and fast turnover. HMRC has made it clear that:

• Your agency is responsible for ensuring PAYE and NIC are correctly paid
• False claims about tax credits can trigger significant liabilities, penalties, and interest
• HMRC does not approve payroll models, even if providers claim otherwise
• Some of these models have links to wider VAT fraud, which can impact your ability to reclaim VAT
• HMRC will pursue businesses that engage in, or benefit from, these fraudulent payroll schemes

For recruitment businesses already under pressure to manage margins and stay compliant, this creates a serious operational risk.

How to spot fraudulent payroll schemes

HMRC has highlighted several signs that a payroll model may be fraudulent:

1. Claims that PAYE/NIC can be reduced using another company’s tax credits

A major red flag, and a strong indicator of potential tax fraud.

2. Being promised exemption from upcoming HMRC or recruitment legislation

Scammers often frame their scheme as a “future-proof” solution.

3. Statements such as “HMRC approved” or “HMRC compliant”

HMRC is explicit: they do not approve or endorse specific payroll solutions.

4. Unusually low costs or unexpected financial incentives

If the savings seem unrealistically high, HMRC advises extreme caution.

5. Complexity or lack of transparency

Fraudsters rely on confusion to mask non-compliant structures.

What recruitment agencies should do next

Staying safe isn’t about being suspicious of everything, it’s about carrying out the right checks.

✔ Do your own due diligence

Don’t rely on the provider’s claims. HMRC expects agencies to make informed decisions.

✔ Seek independent advice

A compliance review can protect you from accidental involvement in fraud.

✔ Ask detailed questions

Legitimate providers will happily explain ownership structures and tax positions.

✔ Avoid unclear or overly complex payroll arrangements

Fraud often hides behind jargon.

✔ Already involved? Act quickly

HMRC encourages early disclosures, which can significantly reduce penalties.

How QUBA Solutions supports you in staying HMRC compliant

At QUBA Solutions, we work closely with recruitment agencies to help them navigate risk, payroll compliance and changing HMRC requirements. We support your business by:

• Reviewing payroll models to identify exposure to fraudulent schemes
• Helping you stay ahead of HMRC changes, including upcoming umbrella legislation
• Providing transparent, compliant payroll and funding solutions
• Offering support and clarity so your agency can grow confidently without unexpected liability

Our goal is simple: keep your recruitment business protected, compliant and help it grow.

“We’re speaking with more and more agencies who are being offered payroll models that look great at first glance but once you dig in, the risks become very real. HMRC’s latest warning is a good reminder that compliance isn’t just a box to tick; it’s about protecting your business, your clients and the people you put into work. At QUBA, we’re here to help agencies make sense of it all and move forward with clarity and confidence.” Rik King, Director QUBA Solutions

Final thoughts: Stay informed, stay protected

The recruitment sector is being directly targeted by promoters of fraudulent payroll schemes, and HMRC’s warning should not be ignored. Understanding how these schemes work, and how to avoid them, is essential for safeguarding your business.

If you’re being approached with a payroll model that promises unusually high savings or uses unfamiliar tax terminology, talk to us. We’ll review it with you, explain the risks clearly, and help you stay firmly on the right side of HMRC compliance.

Need help checking whether a payroll or umbrella model is safe?

We’re here for a friendly conversation anytime.

Disclaimer: This information is for educational purposes based on information correct on 14 November 2025. Please consult HMRC and www.gov.uk resources for further information.

Source: www.gov.uk