Bogus employees on Payroll

Should this be reported

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I have client IT contractor Limited Company. husband and wife. Both are working on IT contracts. 

They have put a a friend and relative on the payroll as far as I can see they are not actually paying them.  Both the friend and relative have NI numbers

I cannot see any genuine business reason for the friend and relative to be on the payroll.  Either its to evade tax or maybe help the two employees to get mortgages or references for future employment.  

Should this be reported to SOCA ?

 

Replies (26)

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RLI
By lionofludesch
27th Feb 2020 15:48

Probably. But only you can decide.

Have you raised it with the clients ? "Who are these folk ? What do they do for the company ? I can't find any payments on the bank account. How are they paid?"

What did they say ?

At least give them a chance to explain themselves ........

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Lone Wolf
By Lone_Wolf
27th Feb 2020 15:48

Have you asked your client why they are on the payroll, rather than jumping to the conclusion it must be some sort of fraud?

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Quack
By Constantly Confused
27th Feb 2020 16:02

Clearly I'm being naive, but what harm is having someone on the payroll if you aren't paying them?

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Replying to Constantly Confused:
RLI
By lionofludesch
27th Feb 2020 16:17

Constantly Confused wrote:

Clearly I'm being naive, but what harm is having someone on the payroll if you aren't paying them?

Well .... I took it to mean that there were wages being reported to HMRC but no money going out of the bank. Hence the reference to helping them get a mortgage.

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By dejaneiro2005
27th Feb 2020 16:04

Could they be irregular workers? Have you checked the FPS reports to see if the irregular payment indicator is set or not.

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By frankfx
27th Feb 2020 16:26

Good cop ,bad cop.

dear client ,
two employees on the payroll.
seems unusual to me
HMRC computer may think unusual too
you know what computers s are like, as you are in IT sector.
Need to have an explanation in case computer asks a question.
if explanation is weak
computer goes into hissy fit of a loop
we want to avoid that .
If and when a HMRC humanoid gets involved , things can go into to a HAL 9000 spin.
You will want to EVADE that.

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By sanjay100
27th Feb 2020 17:51

For IT contractor company there isn't anything to do. Is there ?

I suppose its similar to cases where the husband puts the wife on the payroll allegedly to do some "book-keeping" and "marketing" or put the 18 year son/daughter student to do some "office cleaning" I mean they could say to me well they are sorting out my paperwork for example or trying to find more contracts. I am sure "employing" relatives is quite common but unless you work very closely with your clients it is not obvious what is going on.

I am just looking just to get all my facts right before confronting them.

I actually recall that they did mention one of the employees a while back was going to work for them to help with their friend mortgage (mortgage being a secondary issue). It didn't really click at that stage what was going on. I simply thought that person was actually going to help maybe with the book-keeping and records but that is a 5 minute job anyway.

I suppose the alternative action is to add back the wages in the tax return. If not paid 9 months after year end needs to be added back anyway.

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Replying to sanjay100:
RLI
By lionofludesch
27th Feb 2020 18:09

sanjay100 wrote:

For IT contractor company there isn't anything to do. Is there ?

Probably not but do them the courtesy of asking.

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By ireallyshouldknowthisbut
27th Feb 2020 18:01

Your question is too vague.

When you say "on the payroll" but "not actually paying them"

Do you mean they have produced fake payslips to send to the mortgage co's and then deleted them?

That would be mortgage fraud. Call me old fashioned but its best not to aid and abet fraud.

Or do you mean they have produced fake payslips and filed them to HMRC under RTI? If so, some different problems arise if tax was deducted.

Either way your clients seem somewhat of an insurance risk.

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By SXGuy
27th Feb 2020 18:14

I guess being on the payroll with no record of being paid is abit dodgy. But you really need to make sure you know either why they arnt or if they arnt being paid some other way.

Director might have a large dla withdrawal and is stupidly paying them from that? Who knows. Only you will once you actually ask. If you don't like the answers then consider reporting.

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Replying to SXGuy:
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By sanjay100
27th Feb 2020 18:37

Payroll is run, filed to HMRC under RTI and payslip sent. Yes they could be paid another way.

Its probably being used to booster the earnings of the friend who is seeking to get a mortgage plus added advantage of reducing Corporation Tax. Who knows if that person is carrying out any work but then again the only person who knows is the directors.

I haven't any problems with this clients since I have been working for them and its been straight forward. What they are doing is wrong on a number of counts but then again back to my previous example whats the difference of using some companies using their spouses or kids to reduce their taxes when the work carried out is negligible or non existent compared to the earnings (£715 per month each) ? This happens quite often but not our job to check. Do we just take everything in good faith when they came out with some porkies to justify their actions ?

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Replying to sanjay100:
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By Adam12345
27th Feb 2020 19:10

To get corporation tax relief a salary has to be physically paid within 9 months of the end of the accounting period not to mention the salary also has to be ‘wholly and exclusively’ for the purpose of the trade. This appears to be neither.

Ghost employees warrants a SAR definitely. As a professional adviser, you should always ask the client why? And give them the correct advice. If then refuse (give them a worse case scenario re HMRC enquiries/penalties etc) then submit a SAR and disengage.

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Replying to sanjay100:
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By Matrix
27th Feb 2020 20:09

How do you know? If they are running the payroll then do you get a copy of the reports? I thought they weren’t claiming the cost in their accounts so nothing to deduct against corporation tax or conversely to add back?

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Replying to sanjay100:
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By SXGuy
27th Feb 2020 20:39

Yes but the difference here is whether they are actually being paid or not. Its one thing to stick your wife on the books but it's another to not actually pay her either.

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Replying to sanjay100:
RLI
By lionofludesch
27th Feb 2020 22:32

sanjay100 wrote:

Payroll is run, filed to HMRC under RTI and payslip sent. Yes they could be paid another way.

Its probably being used to booster the earnings of the friend who is seeking to get a mortgage plus added advantage of reducing Corporation Tax. Who knows if that person is carrying out any work but then again the only person who knows is the directors.

I haven't any problems with this clients since I have been working for them and its been straight forward. What they are doing is wrong on a number of counts but then again back to my previous example whats the difference of using some companies using their spouses or kids to reduce their taxes when the work carried out is negligible or non existent compared to the earnings (£715 per month each) ? This happens quite often but not our job to check. Do we just take everything in good faith when they came out with some porkies to justify their actions ?

Well I would suggest the difference is probably that those kids aren't applying for a mortgage. Up to you, obviously, but I wouldn't accept being part of this deception. I would suggest that you disengage if they don't desist.

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By frankfx
27th Feb 2020 18:20

Assume all is innocent.

You still need to establish the tasks done.

Could be a benefit in kind.

Are there auto enrollment obligations.

Minimum wage and records.

Payslips issued.

Starter checklist.

Contract of employment.

Employer insurance.

The above will have a bearing on the advice you provide.

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Replying to frankfx:
Quack
By Constantly Confused
28th Feb 2020 07:54

frankfx wrote:

Assume all is innocent.

You still need to establish the tasks done.

Could be a benefit in kind.

Are there auto enrollment obligations.

Minimum wage and records.

Payslips issued.

Starter checklist.

Contract of employment.

Employer insurance.

The above will have a bearing on the advice you provide.

A cloud of cherry blossoms;

The temple bell,-

Is it Ueno, is it Asakusa?

How many, many things

They call to mind

These cherry-blossoms!

Very brief –

Gleam of blossoms in the treetops

On a moonlit night.

A lovely spring night

suddenly vanished while we

viewed cherry blossoms

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By Tax Dragon
28th Feb 2020 07:16

How do you know the (non-client) friend is applying for a mortgage (pretty intimate info), and not know what's happening with your client?

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By lesley.barnes
28th Feb 2020 11:03

Are you saying that the "employees" are not being paid at all or they are not being paid through the company bank account? It would be unusual but have you asked the client how the employees are being paid - if they say cash ask were it is coming from - cash point you should see regular drawings.
Unless you are absolutely certain after you get an explanation from the client that there is no wrong doing don't continue to process the payroll (f you are doing it). You need to do a SAR and disengage yourself.

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boat
By SouthCoastAcc
28th Feb 2020 11:59

Mortgage provider will want to see proof the wages have been paid in their bank account, which would scupper the plans.

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Replying to SouthCoastAcc:
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By Tax Dragon
28th Feb 2020 12:44

That doesn't mean that a crime has not been committed.

(I'm not alleging anything, by the way, with that comment. Like many others, it would seem, I haven't been able to plait the jigsaw.)

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Replying to Tax Dragon:
boat
By SouthCoastAcc
28th Feb 2020 13:33

We agree I think. I'm not saying there has or hasn't been, right now it doesn't make sense to me which like you say means there must be a vital piece of that jigsaw missing .

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David Winch
By David Winch
28th Feb 2020 12:55

I assume you will want to ensure that the payroll info submitted to HMRC is consistent with the employer's annual accounts submitted to HMRC. That must mean the net pay is either paid or accrued. If accrued you may have issues relating to the CT comp.
If you do suspect some sort of mortgage fraud, or tax fraud, or fraud on the employer, then a Suspicious Activity Report to your MLRO or the NCA needs to be seriously considered.
David

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By Jdopus
28th Feb 2020 14:24

I have to disagree with the people here suspecting mortgage fraud. As other people have said, mortgage companies won't give any credence to payslips unless there are exact amounts being paid into the employee's account at regular intervals. So if it is an attempt at mortgage fraud it's an ineffective attempt that won't work anyway.

Sometimes the best explanation is the simplest - are they just being paid in cash? It's very common in certain small companies even if it's not the wisest way of paying staff.

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Replying to Jdopus:
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By Tax Dragon
28th Feb 2020 14:32

We're accountants and tax professionals, not defence lawyers. Or indeed prosecutors.

Do you object to the OP asking the client what's happening/ed?

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By landscaper
02nd Mar 2020 12:30

I would assume it's so they can claim the Employers' Allowance? Ask them

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