Payroll Fraud Solicitors

Payroll fraud refers to any scenario in which someone deliberately and dishonestly changes or adds incorrect information to an organisation’s payroll documents or systems with the purpose of unlawful financial gain. It covers a number of deceptive practices that may be conducted by businesses or individuals, including fraudulent evasion of taxes due to HM Revenue and Customs, and there can be serious legal consequences if someone is convicted of payroll fraud. 

As such, it is vital to secure legal representation in payroll fraud cases, whether you are accused of committing payroll fraud, or your business was the target of fraudulent activity. Support from a solicitor can ensure that your rights are protected throughout the process and help you to achieve the best possible outcome. 

The team at JMW Solicitors has many years of experience supporting individuals and businesses of all sizes in payroll fraud cases. Our work on many high-profile cases means that we are prepared for every eventuality, and this means that we can plan strategically to help you achieve your objective.

From a defence perspective, JMW can provide the legal services you need - for example, by representing you during interviews under caution, or in court - to pursue the best outcome possible if you are accused of payroll fraud.

When representing companies, we are often asked to advise on tax arrangements and to investigate suspicious practices within the company to detect wrongdoing. We are asked to advise on whether a particular supplier or customer may be committing a payroll, PAYE or VAT fraud. This advice can be crucial in protecting the client company from action by HMRC in particular. Advice of this type is normally provided in conjunction with development of policies and procedures to ensure compliance with the Criminal Finances Act 2017 and associated regulations.

To learn more about how JMW can help you, call us today on 0345 872 6666, or fill in our online enquiry form to arrange a call back at a convenient time.

How JMW Can Help

The business crime specialists in JMW’s Criminal Defence team understand the devastating impact that allegations of fraud can have on your life and your business. We also recognise the financial damage that an organisation can sustain when it is subjected to payroll fraud and the need for clear oversight and fraud prevention processes.

No matter the circumstances, the Business Crime and Regulation team at JMW is dedicated to safeguarding your business interests. If you have been accused of payroll fraud, our detail-oriented approach can enable us to carefully examine your situation and build the strongest possible defence.

A lawyer who specialises in white-collar criminal defence, and fraud in particular, can ensure that correct procedures are followed regarding the gathering and processing of evidence. They can also represent you during interviews with HMRC or other investigating authorities to ensure your rights are protected and to advance the most positive case. The solicitors at JMW have extensive knowledge of this area of the law and a track record of success in defending individuals and organisations alleged to have participated in payroll fraud.

If you suspect that payroll fraud is happening within your organisation, we can help. We have very significant experience representing employers who wish to investigate possible payroll fraud taking place within their businesses. Our expert team can investigate and if necessary, privately prosecute the individuals responsible. We can provide the relevant regulatory advice to help you identify fraudulent activity and take action to hold those responsible to account. This includes providing compliance advice to officers within the company, and helping to develop procedures to protect the company from the impact of fraudulent activity.

What Is Payroll Fraud?

Payroll fraud refers to any deliberate act of manipulating payroll systems or processes to misappropriate funds from a company. It can also manifest itself as an unlawful attempt to defraud HMRC in respect of taxes due to the Revenue. Consequences may include criminal charges leading to custodial or non-custodial sentences, as well as civil liability leading to fines and associated tax penalties.

An allegation of payroll fraud can encompass a number of practices, including:

• Ghost employees - adding non-existent individuals to the payroll system so that you can collect their wages or divert funds.
• Fictitious time sheets or overtime - misrepresenting the number of hours you or other employees have worked, or paying employees for overtime they did not work.
• Commission schemes - inflating sales or commission figures to receive more compensation than you are entitled to.
• IR35 Working Rule breaches – arising from an IR35 investigation by HMRC.

Naturally, this can be an ambiguous area of the law, and suspects may deploy several possible defences to demonstrate that they did not deliberately commit an act of payroll fraud. If you are accused or if you represent a company seeking advice on the subject, contact an expert solicitor at the earliest opportunity. The team at JMW Solicitors has significant experience in helping companies and individuals in this area of law, particularly in the recruitment, construction and healthcare sectors.

FAQs About Payroll Fraud

How can a business identify payroll fraud?

To detect payroll fraud, a business needs to understand the most common signs and maintain a close eye on payroll transactions. Activities that may indicate fraudulent activity is taking place include: 

• Inconsistent payroll records, which may include:
• Duplicate employee entries;
• Ghost employees;
• Unauthorised or unexplained changes to pay rates;
• Irregular payment schedules;
• Wide pay disparities between employees in the same role; or;
• Unexplained adjustments or deductions;
• Unusual patterns of timekeeping, overtime or bonuses
• Excessive overtime
• Recurring payroll errors
• Different employees with the same or similar bank account details
• Tips or reports from whistleblowers

These irregularities might first be noticed by workers, particularly if they result in incorrect or missing pay, discrepancies in their hours worked or inconsistent rates of pay. If you receive complaints about this from employees on a regular basis, consider investigating further.

It's important to note that these red flags and warning signs should not be considered definitive proof of payroll fraud. However, they serve as indicators that warrant further scrutiny and investigation by management or external experts to identify and address any potential fraudulent activities.

What can businesses do to prevent and address payroll fraud?

Any of the signs of fraud that we have listed above may be much harder to detect and counter if your business has not effectively delineated responsibilities and duties in this area. If a single individual controls multiple aspects of the payroll process without sufficient oversight, this can significantly increase the risk of fraudulent activity. The same is true if you have not implemented effective internal controls and oversight over any of your financial processes.

As such, enforcing stricter controls over your financial processes should be your first step towards detecting any payroll fraud and preventing it in future. From there, you should monitor for compliance and conduct independent reviews or audits occasionally, to ensure that your efforts are working as intended. 

If you suspect that one or more employees have been engaging in payroll fraud, prompt action is necessary to preserve evidence and minimise the impact on your business. Conduct a thorough internal investigation with a structured approach: gather relevant documentation, interview employees, and collaborate with forensic accountants or other experts to analyse financial records. Maintaining confidentiality and evidential integrity during the investigation is essential to protect the rights of all parties involved. By conducting a diligent and impartial internal investigation, you can gather evidence and establish the facts necessary for an effective defence strategy. 

It is best to work with an experienced solicitor in these cases, as there may be questions about the types of evidence you can collect, the rights of an interview subject during this type of investigation, and other matters. In order to protect your business, legal guidance will be vital.

What is PAYE fraud and how is it different from payroll fraud?

Unlike payroll fraud, PAYE fraud is related to a business’ taxes. In the UK, the Pay As You Earn (PAYE) tax system means that businesses deduct income tax and national insurance contributions from employees’ pay automatically. Then, the business pays this money to HMRC.

PAYE fraud occurs when a company collects more PAYE from employees than it pays to HMRC, either by taking more than the business has reported from employee’s pay, or intentionally under-reporting its tax obligations to HMRC.

If you are concerned that this is taking place within your business, or you have been accused of PAYE fraud, it is important to speak to an experienced business fraud solicitor at the earliest opportunity.

How can a business prevent payroll fraud?

The UK government recently announced plans to introduce a new offence called ‘Failure to Prevent Fraud’, which gives businesses additional responsibility for financial crimes conducted by employees. To avoid this charge, organisations must implement robust anti-fraud policies and procedures. Under the new offence, organisations falling within particular parameters will be liable where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company bosses ordered or knew about the fraud. 

This is distinct from the existing offence of ‘Failure to prevent facilitation of UK or foreign tax evasion offences’ contrary to the Criminal Finance Act 2017.

Following the steps we have outlined above - for example, by segregating duties, introducing additional internal controls, and conducting independent audits - will help businesses to fulfil this requirement and be strong measures against fraud.

Implementing robust internal controls, such as separating payroll responsibilities and conducting periodic audits, can help identify and prevent payroll fraud before it causes substantial harm to your business.