Introduction
If your business operates within the UK private security industry and engages subcontractors to fulfil contracts, this update from HM Revenue & Customs (HMRC) is essential reading. HMRC has issued letters to various security firms, warning them about the correct taxation of subcontracted security workers.
This blog outlines the key issues raised by HMRC, how your security firm can stay compliant, and what steps you must take before 3 August 2025 to avoid penalties.
Why HMRC Is Targeting Security Companies
The security sector has been highlighted due to the increasing misuse of employment statuses and the infiltration of complex supply chains. HMRC suspects that some workers are being incorrectly treated as self-employed when in fact, they should be classified as employees for tax purposes.
These arrangements often lead to underpayment of Income Tax and National Insurance Contributions (NICs). Criminals also use fraudulent supply chains to exploit workers by under-declaring tax or not passing on deductions to HMRC.
Who Is Affected?
- Security companies that subcontract work to individuals or third-party agencies.
- Businesses that supply security personnel under contracts.
- Subcontractors working as security guards but treated as self-employed without proper employment checks.
HMRC’s 3 Key Instructions
To ensure compliance and avoid penalties, HMRC expects businesses to take the following actions by 3 August 2025:
- Check PAYE Registration: Ensure all security operatives are correctly registered for PAYE and NICs. If they are working under your direction, they are likely to be employees in HMRC’s eyes.
- Full Payment of Tax and NICs: Confirm that all payments to subcontractors account fully for Income Tax and NICs, in line with UK employment tax law.
- Review Other Parties Involved: If you work with third-party agencies, recruitment firms, or other subcontractors who provide workers, verify who has PAYE responsibility. You are still accountable if your supply chain fails to comply.
Are Your Subcontractors TRULY Self-Employed?
You must determine whether a subcontractor is self-employed or should be considered an employee for tax purposes. HMRC provides a tool to help with this:
🔗 Check Employment Status for Tax (CEST)
This tool helps you evaluate factors such as:
- Degree of supervision, direction, and control
- Who provides tools and uniforms
- Whether there is a substitution clause
- Financial risk and independence of the worker
If the result suggests that PAYE should apply, you must start deducting tax and NICs via payroll.
What Happens If You Ignore the Rules?
Failure to comply may result in:
- Unpaid tax liabilities
- Interest and penalties
- Reputational damage
- Criminal prosecution in cases involving fraud
Learn About the Rules for Security Operatives
To further understand how HMRC rules apply to security guards, stewards, door supervisors and other operatives you engage, read:
🔗 HMRC Guidance: Learn How the Rules Apply
This guidance includes:
- Case studies
- Examples of supply chains
- Risks and how to mitigate them
Tips to Stay Compliant
- Conduct regular employment status checks for every subcontractor
- Use the CEST tool and keep a copy of the result as evidence
- Ensure your supply chain partners (e.g. umbrella companies, agencies) are fully compliant
- Keep proper digital records of all worker payments and tax deductions
- Engage a qualified accountant to manage PAYE, payroll, and employment checks
How Taxwise Accountancy Can Help
At Taxwise Accountancy, we specialise in providing tax and compliance services for UK security companies. Whether you need help registering for PAYE, performing subcontractor checks, or preparing payroll, our expert team is here to assist.
We offer:
- PAYE registration and setup
- Subcontractor employment status checks
- Payroll processing and RTI submissions
- Full bookkeeping and tax compliance support
- Assistance with HMRC audits and disclosures
FAQs
1. Do I need to operate PAYE for all subcontracted security workers?
Yes, if the CEST tool shows that the worker should be classed as employed, PAYE must be operated.
2. Is it enough if my recruitment agency deducts PAYE?
Only if they are the actual employer. You must verify that they are doing it correctly—HMRC can still hold you accountable.
4. What if I pay workers via a limited company?
This does not automatically mean they’re self-employed. Use the CEST tool to confirm their status.
5. How can I prove I checked worker status?
Save and document every CEST result. Keep clear audit trails for every subcontractor.
6. Can HMRC backdate liabilities?
Yes. If they believe there’s deliberate non-compliance, HMRC can backdate tax and issue penalties.
Final Thoughts
The cost of non-compliance can be high—but it’s avoidable with the right systems and advice in place. If your security firm relies on subcontracted workers, now is the time to review your tax responsibilities.
Need help ensuring your business is compliant?
📞 Contact Taxwise Accountancy today for a free consultation.
