The client seeks advice on a new venture offering payroll compliance services through their company to a group of businesses operated by a long-standing associate. The client will be paid per worker to verify right-to-work, ID, and payslip accuracy, and will also conduct ad hoc checks on customer and supplier compliance (VAT, PAYE, insurance, banking).
The associate plans to settle HMRC liabilities using unconventional “commercial instruments” and “set off” mechanisms, based on advice from a third-party consultancy. These methods are said to be lawful but lack formal recognition by HMRC.
The associate is acquiring the client’s former payroll companies and intends to migrate staff and assets into a new entity. The client is concerned about legal exposure, reputational risk, and being perceived as a shadow director.
The proposed tax settlement methods may not be accepted by HMRC and could trigger enforcement actions. The client’s compliance role may create legal risk if liabilities are not properly discharged. The third-party instruments lack clarity and may be legally insufficient.
The venture involves substantial financial commitments, including a multi-million-pound acquisition and the employment of thousands of workers.
Counsel advised formalizing the relationship between the client and the associate, including indemnities to protect the client. A detailed map of assets, liabilities, and client relationships is needed. Counsel offered to investigate the third-party instruments and assess their legal viability.
The client was advised to gather all correspondence and prepare for deeper scrutiny. Counsel’s clerks will follow up to structure the engagement and prioritize the client accordingly.
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