Professional Passport, an independent assessor of payment intermediary compliance, has warned the industry about this new and potentially fraudulent payment practice, which poses significant risks to recruitment agencies and their contractor placements.

According to Professional Passport, the Ghost Payroll scheme has been identified in two primary forms. In the first, payments are funnelled through undisclosed secondary companies. The second involves hidden payrolls that conceal the true taxable income of contractors. 

Recruiters should be on high alert for red flags such as discrepancies between contract details and actual payment sources, or payslips showing taxable pay at or near National Minimum Wage despite higher assignment rates.

Her Majesty’s Revenue and Customs (HMRC) has implemented sophisticated detection methods to identify these schemes, including cross-referencing Real Time Information (RTI) submissions with quarterly reports from recruitment companies. This increased scrutiny puts recruitment agencies at risk of potential legal and financial liabilities, as well as damage to their reputation and client relationships.

Crawford Temple, CEO of Professional Passport, said: “The Ghost Model is a new and concerning development for the umbrella industry. The landscape has shifted. It’s no longer a question of if HMRC will detect these schemes, but when. Recruitment agencies need to be proactive in ensuring their contractors’ payment arrangements are above board.

“To mitigate these risks, recruitment agencies must take proactive steps. It’s crucial to thoroughly vet all umbrella companies and payment providers, being particularly wary of ‘umbrella brokers’ promising high-return options. Educating contractors about the risks of these schemes is essential, as is implementing robust compliance checks for all payment arrangements.|”

Matt Fryer, managing director of Brookson Group, a People2.0 company, a global provider of workforce compliance and payroll services for enterprises and talent suppliers, adds: “Both contractors and recruiters should be on their guard to avoid getting involved in a supply chain involving one of these tax avoidance schemes as they could be storing up a big tax bill and reputational damage further down the line. Often these scheme providers entice users by offering kickbacks to agencies and advertising high tax home pay for contractors; these should be viewed as ‘red flags’.

“HMRC and HM Treasury are currently working up proposals to regulate the umbrella sector in the UK and are proposing harsh penalties for agencies and possibly end clients who facilitate the use of these non-compliant schemes within their supply chains. Now would be a good time to review your supply chains to ensure you are protected from risk going forward.”

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