We have been made aware of a client fraud currently working its way through the Recruitment sector, specifically within the Contractor Market. Please be extra vigilant when working with new clients, specifically clients requesting contractors to be paid via a Limited Company.
How do they work?
The fraudulent client calls the agency and requests that they urgently require contractors, but they already have contractors they wish to work with. The agency agrees to take on the contractors and starts to pay them via a Limited Company. The client then fails to pay the invoices, and there is no response when pursued for the outstanding debt, leaving the agency with an unrecoverable amount of debt.
Risk also increases if the Limited Company is non-compliant and defaults on their VAT and HMRC liabilities. HMRC dictates that if you ‘should have known’ that the Umbrella/Limited Company was fraudulent, any unpaid liabilities can quickly fall at your door.
There are growing concerns over the use of non-compliant umbrella companies as HMRC continue to place a heavy focus on this sector. “Spotlight 55” raises this risk yet again and specifically points out the following: You will be at risk if you use an umbrella company that involves tax avoidance. You are legally responsible for your tax affairs and paying the correct Income-tax and National Insurance contributions (NICs).
Not all business is good business!
To help reduce your risk, we recommend that you are extra vigilant when working with a new client.
A good indication of whether a client is good business or not, is by their given credit limit. You will be aware that some clients receive meagre funding limits. Please remember that this is applied because the client is not creditworthy and provides you with a good indication as to whether you should work with this client or not.
Due diligence checks are also a great way to find out if a client is legitimate. Here at Simplicity, we have robust due diligence checks in place, which our credit admin team carry out as part of our recruitment finance service. These checks help minimise the risk of client fraud.
Are you ready for IR35?
With the New IR35 legislation on the horizon, it is more important than ever to ensure that your recruitment business is compliant and pay contractors according to the legislation.
We recommend ensuring that you pay contractors via a legitimate and compliant umbrella/contractor solution to reduce your risk.
We provide a range of safe and compliant payment solutions for contractors, whether their engagement is inside or outside IR35.
Please speak to our Simplicity Contracting team at 01594 888519 or email email@example.com