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HMRC Update

Ian Anfield | 16th September 2014

HMRC’s Special Investigations Unit: Will it spell commercial suicide for hundreds of construction companies?

HMRC’s specialist team of tax investigators is finally ready to make a significant move on labour providers – and construction companies that have failed to do their due diligence. And the results could be devastating. . .

It has taken more than two years for the HMRC squad to get up and running, but now, it seems to be making up for lost time. Building firms throughout the UK are finding questionnaires on their doormats sent by the Special Investigations Unit (SIU) asking who is supplying and/or paying the labour on their construction sites.

The SIU’s brief is to stamp out the rogue agencies and other labour providers that are profiting – illegally – from the spread of mass market self-employment schemes and the lucrative opportunities they have created for VAT and CIS fraud.

Typically, a dishonest payroll company charges VAT when not registered, continues to collect VAT when de-registered, or simply under-reports the VAT it has been paid by suppliers. Similar frauds are also available to unscrupulous companies who collect CIS deductions from operative payments.

Unless you carry out a systematic series of checks, you could be liable for a huge bill.

In short, it has never been more business-critical for construction firms to carry out thorough due diligence. We hear every week that our clients are being approached by payroll companies that claim, “We’re just like Hudson Contract, but cheaper!”

But what if the payroll company that’s supposed to be ‘just like Hudson Contract turns’ out to be a sham?

Firms that get caught up with criminal activity could be presented with a bill from HMRC – or even from the operatives when they discover at year-end their CIS deductions have not been passed to the Revenue.

Warning signals

It is your responsibility – and no-one else’s – to be certain your CIS contract and payroll provider is legal, honest, decent and truthful. And quite simply, an offer that is too good to be true usually is.

Just look at it from HMRC’s point of view. If a payroll company has:

  • A low credit score 
  • A short trading history
  • No material wealth

The question that has to be asked is, “Why on earth would a construction firm send such a company regular, large amounts of money, trusting them to pay the correct taxes?” The very best interpretation is that such action is negligent.

So if you are regularly paying an operative who provides a gang, make sure his VAT certificate is genuine and that he is verified for CIS with HMRC

It is commercial suicide not to carry out due diligence on a regular basis, even after you’ve signed up with a payroll provider; in the current economic climate circumstances can change quickly.

Hudson Contract clients have nothing to fear

As a Hudson Client you have nothing to worry about. If you should receive a questionnaire and would like help completing it, just call us on 0161 241 0550.

Perhaps more importantly, if you have friends and contacts in other construction companies who are CIS registered, you should warn them that the HMRC now has construction firmly in its sights, and that making a poor call on due diligence could be disastrous.

You can recommend Hudson Contract to these companies under our Rewards Scheme. We’ll be happy to help them review the due diligence process and pinpoint any business risks.