The Risk of entering in to a sham payroll contract

The Risk of entering in to a sham payroll contract

17th November 2016 | Hudson Contract


Jolyon Maugham QC (Specialist tax barrister)


Video Transcript 

Jolyon Maugham - 

Well if you enter into a sham contract with an intermediary there are a couple of possible or probable consequences. One of those is that the court will assume that you have engaged with those individuals directly and if those individuals properly understood or employed, a court will say you ought to have applied PAYE and deducted tax and employers and employee national insurance contributions.

A court may also decide that because you entered into the contract you are liable for penalties. The other danger of engaging individuals under sham contracts is that the companies who offer those contracts are in essence peddling snake oil and they are unlikely to be around to meet their obligations in the long run.

You can tell that because of the sort of business they’re doing. You know you need to be quiet careful to understand whether there is a risk of that business folding, perhaps folding whilst it has the money that you have paid it to engage it’s workforce.

A sensible, astute, commercial man or women of business is careful about the counterparties that they engage with and they are careful not to engage with counterparties who are selling snake oil for obvious reasons.