Organised Labour Fraud

Have you heard of OLF (Organised Labour Fraud)?  HMRC’s Fraud Investigation Service (FIS) uses this term when describing organised crime that involves genuine labour supplies. The Chartered Institute of Payroll Professionals published a HMRC special on the topic, but have you taken the time to check whether you have protection against such fraud in place?

Three areas of organised labour fraud to consider are:

1. Labour fraud in construction

This often involves contrived labour supply chains that can lead to abuse of the Construction Industry Scheme (CIS). In some cases, labour related VAT (that is not subject to the domestic reverse charge) and Income Tax can end up in shell companies that then go missing, or do not pay over monies to HMRC, resulting in a debt owed.

For the workers involved in any OLF they may not have a choice but to work through agencies or labour supply organisations and therefore may not even know what is happening. These businesses may produce a payslip with the right information on for the worker but not pay over the same amounts to the relevant bodies, including HMRC and pension funds, or may even not pay anything at all. Whilst not paying over monies due is a serious issue, one of the worst parts of fraud in construction can be workers are subject to slavery such as long hours, unsafe conditions and no way of leaving the employment.

Businesses involved in this fraud tend to pop up and disappear quickly, usually for around 18 months.

2. Mini-umbrella company fraud

This fraud takes the usual intermediary model of an umbrella company, but instead of one company, fraudsters split the company into several small umbrella companies and divvy up the workers in them. What this then allows for is the businesses to claim allowances such as employment allowance for several businesses instead of just one. They may also abuse the flat rate VAT scheme too.

3. Payroll company fraud

This is when a company transfers its staff to a supposed payroll company who takes full responsibility for the payroll.  However, they do not do anything but supply the labour back to the original company and does not make any payments to HMRC or other bodies on behalf of the workers.

There are some steps businesses can take to reduce the risk when utilising labour from supply chains:

• As part of your business’s due diligence procedures check the suppliers, know the risks of not complying with legal, financial, tax and social obligations
• When carrying out the due diligence checks make sure you act to mitigate any risks
• And finally review and carry out continuous monitoring of your due diligence checks

If you have any concerns or would like help with understanding the risks or, wish to undergo a review of your due diligence procedures, please contact Karen Thomson in the first instance.