CIS payroll fraud alert: A wake-up call for construction companies

CIS payroll fraud alert: A wake-up call for construction companies

8th August 2016 | Ian Anfield

CIS payroll fraud – and its detection - is on the increase. Last month, HMRC busted a £6.9 million construction tax fraud involving VAT, National Insurance Contributions and CIS deductions carried out by a crook who offered an umbrella payroll service to the clients he conned. 

He took their cash and laundered it through a spider’s web of bank accounts around the world, including Dubai, South Africa, Chile and Jersey.  Those convicted include a client who profited from the fraud. 

The client was Victor Shearer, owner of the construction supply company Leaner Logistics.  I met him a few years ago when he was looking for an intermediary to engage and supply labour for construction sites across London.  In the event, he turned down Hudson Contract, saying he could get a better offer elsewhere . . . an offer that has now cost him his business, his reputation, and after sentencing – quite possibly his freedom.

Only a few days later, news of another win for HMRC was announced.  This time, a payroll company submitted fake VAT returns, failed to verify CIS operatives, and went bust owing £365,000.

These big cases are just the tip of the iceberg. 

Rogue operations are being regularly reported, and stories about contractors who have lost an entire week’s payroll – and more besides – to their trusted intermediary are sadly not uncommon.  For example, a firm that is now a Hudson Contract client lost £65,000 when its payroll company simply shut up shop and vanished.

It has been a long held frustration at Hudson Contract that clients are sometimes lured away by so-called competitors with promises of:

  • "It will cost you nothing to use us!"
  • "We will give you cashback for paying your operatives through our scheme!"
  • "Pay your guys through us and we can smooth over your union troubles!"

Common sense says a reputable service is something you need to pay for.  So when a supposed payroll company offers to pay you to use them questions need to be asked about how they intend to make a profit.

At Hudson Contract, we take the professional, straightforward approach and charge all clients for our Audit, Contract and Payroll services.

We have always said that if it seems too good to be true, it probably is.   And during our 20-year history we have been proved right many, many times.

If you are offered a service that costs you nothing, offers cashback, or claims to have sweetheaart deals in place with union officials, you need to walk away.   After all, if a payroll company gives you money back but has not paid taxes itself, how do you know you won’t be implicated in tax fraud?  At best you will lose a week’s payroll when they eventually fold.  So why on earth put yourself in that position?

If your business is in laying bricks, tiling roofs or placing concrete, stick to what you know, and let the experts in dealing with CIS, tax law, status and employment issues keep your business safe from HMRC and tribunal hassles.  Yes, there is a cost involved, but considered against what happens if you trust the wrong people, or do it yourself and get it wrong, the sums involved are tiny.

Hudson Contract clients are safe in the knowledge we do things properly.

However, if you are using anyone who; takes money from operatives for insurance, charges them a fee, offers you cashback, or who claims to circumvent industrial relations polices, then I urge you to get in touch and take advantage of our free contract health check.  That way, you will know if you could be heading for trouble . . . and understand the specific financial implications for your business.  If you have any concerns, please do call.

Ian Anfield

Managing Director, Hudson Contract

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