3 August 2025 – HMRC expects all security firms to have reviewed and corrected subcontractor tax arrangements by this date.
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.
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.
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
To ensure compliance and avoid penalties, HMRC expects businesses to take the following actions by 3 August 2025:
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.
Confirm that all payments to subcontractors account fully for Income Tax and NICs, in line with UK employment tax law.
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.
Failure to comply may result in unpaid tax liabilities, interest and penalties, reputational damage, and criminal prosecution in cases involving fraud.
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:
Use HMRC's official tool to evaluate your subcontractor's employment status:
Access CEST ToolIf the result suggests that PAYE should apply, you must start deducting tax and NICs via payroll.
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 ApplyFailure to comply may result in:
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
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.
Or call us today at 01582 487594 to discuss your requirements
Get answers to common questions about subcontractor tax compliance
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.
Contact Taxwise Accountancy today for a free consultation and let our experts guide you through the compliance process.
Call us: 01582 487594