HMRC has published new guidance on payslip fraud, warning that deductions shown on a worker’s payslip or Construction Industry Scheme statement may not always have been paid over correctly. For small employers, agencies and firms that use contractors, the practical message is clear: payroll oversight should extend beyond producing a document that looks right.
What HMRC has warned about
Payslip fraud can occur when a worker receives a payslip showing tax or National Insurance deductions that have not reached HMRC. Similar problems can affect CIS deduction statements. Incorrect pay information, missing payslips and unexplained changes to the business named on payroll documents can also be warning signs.
The worker may only discover the problem when checking their National Insurance record, claiming a tax repayment or benefit, or accessing pension entitlements. HMRC says consequences can include difficulty claiming statutory payments, unexpected tax bills and a lower State Pension than expected.
The risk is particularly relevant where a labour supply chain includes recruitment agencies, umbrella companies, payroll providers, contractors and subcontractors. More links in the chain can make accountability harder to see, especially on construction projects.
Why this matters to small businesses
An SME may run payroll correctly in-house but still face reputational and operational risk through a labour supplier. Workers will usually look first to the organisation that engaged them when pay records do not match official records. Disputes can consume management time, damage trust and disrupt projects.
Small agencies and payroll businesses also need to be able to explain clearly who employs the worker, who makes payment and which organisation is responsible for deductions. Vague or changing arrangements are not only confusing; HMRC identifies frequent moves between payroll companies or employer names as a possible warning sign.
This is a useful prompt to review payroll controls alongside other employer administration. BritishSME has also covered HMRC’s phased changes to payrolling benefits in kind, which may help employers planning their wider payroll processes.
A practical checklist for employers and labour users
Small businesses do not need to assume that every discrepancy is fraud, but they should make it easy to identify and investigate one. A proportionate review could include the following steps:
- Confirm the chain of responsibility. Record who employs each worker, who pays them and who submits deductions to HMRC. Do the same for agency and umbrella arrangements.
- Check supplier due diligence. Review contracts, company details and named payroll contacts before engaging a labour provider. Make sure the commercial arrangement matches what workers are told.
- Keep payroll records consistent. Investigate unexplained changes in employer names, payslip formats, deduction descriptions or access to online payslip portals.
- Make deductions understandable. Avoid vague labels such as “admin adjustments”. Workers should be able to reconcile gross pay, hours, tax, National Insurance, pension contributions and net pay.
- Create a route for concerns. Tell staff, contractors and temporary workers whom to contact if a payslip is missing or appears wrong. Log the issue and its resolution.
- Check pension payments. Where pension contributions are deducted, ensure payments reach the relevant scheme and that records reconcile.
HMRC advises workers to compare payslip deductions with their Personal Tax Account, HMRC app or National Insurance record. Employers can support that checking culture by responding promptly and retaining evidence that submissions and payments were made correctly.
Extra checks for construction businesses
Businesses using CIS subcontractors should ensure deduction statements are issued and that responsibilities remain clear across every tier of a project. HMRC notes that a CIS subcontractor may need evidence of deductions when claiming a repayment or offset. A missing payment elsewhere in the chain can therefore create a real cash-flow problem for a small subcontractor.
Construction firms should map their labour supply chain, avoid unexplained switching between entities and make sure subcontractors know where to raise discrepancies. These checks are particularly important when a provider promises unusually high take-home pay or suggests arrangements that workers do not fully understand.
What to do if something does not match
Start by checking the payroll records and contacting the responsible provider. Preserve payslips, CIS statements, contracts, invoices and correspondence rather than relying on verbal explanations. If deductions shown to a worker do not match HMRC’s records, or fake or missing payslips are suspected, HMRC provides a route to report tax fraud.
The new guidance is not a reason for employers to panic. It is a reason to make payroll accountability visible. A short review now can help a small business protect its workers, spot weak suppliers and deal with errors before they become larger tax, pension or employment problems.
Source
HMRC: How to avoid payslip fraud (published 25 August 2026).
