In the briefing, HMRC says that organisations are contacting businesses and claiming that they can use tax credits to reduce the employer’s pay as you earn (PAYE) liabilities and national insurance contributions (NIC). The tax credits, which are said to be held by businesses that the organisation can acquire, can be accessed through joint employment, co-employment or professional employer organisation options.
HMRC believes that the arrangements are fraudulent and that none of the taxes due to HMRC are being paid. The organisation may create false documents to give the employer the impression that the appropriate tax returns are being filed with, and the taxes paid over to HMRC.
Employer’s responsibilities
HMRC is reminding employers that they are responsible for ensuring they pay the correct amount of PAYE and NIC to HMRC. Where the employer fails to do this, they may need to make good any PAYE and NIC underpayments, plus interest and possibly penalties. If the scheme results in underpaid VAT, HMRC may remove the business’s right to deduct input VAT. Depending on the circumstances, HMRC may also consider pursuing a criminal prosecution.
HMRC says that marketing materials for the scheme may claim that the model will fall outside of the new umbrella company legislation due to take effect in April 2026. However, HMRC is confident that agencies will be liable for any underpayment of employment taxes under the new rules.
Advice for employers
HMRC is encouraging businesses to undertake their own “robust” due diligence and to seek independent advice before signing up to a model that promises to use tax credits to deliver PAYE and NIC savings.
Signs that a scheme may be fraudulent
HMRC says that employers should watch out for the following signs that schemes may be fraudulent:
- “third parties”, such as a joint employment, co-employment, Professional Employer Organisation (PEO) or other intermediaries offering models that claim to offset your tax liability using tax credits
- using tax credits obtained by acquiring companies in financial difficulty or maybe in pre administration
- accounting models that claim to avoid the umbrella legislation starting on 6 April 2026
- models that claim they are HMRC approved
- models that claim they are King’s Counsel (KC) approved
- incentives or ‘kick back’ payments for using the model being offered”
Further information
ICAEW on the Budget
Latest on business tax
The Tax Faculty
ICAEW's Tax Faculty is recognised internationally as a leading authority and source of expertise on taxation. The faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
Further resources
Latest news
TAXwire and Tax Track
Stay up to date with the latest developments by signing up to the Tax Faculty's weekly enewsletter and listening to the Tax Track podcast series.
Listen now Newsletter sign upPractical guidance
Tax Faculty resources
The Tax Faculty offers expert guidance and support enabling you to provide the best advice on tax legislation to your clients or business. We offer clear direction in taxing times. Membership is open to everyone.
ICAEW support
Training and events
Browse upcoming and on-demand ICAEW events and webinars focused on developments in tax practice and policy.
Events and webinars CPD courses and more