When your subbies turn into labour suppliers: The risks to them and to your own business

One of the great things about the UK construction industry is an accessibility that enables new businesses to start up and flourish.  Self-employed tradesmen and professionals who succeed in working for themselves – selling their services to maximise their earning potential – often go on to create their own, fully-fledged firm, supplying other workers, plant and materials.

The first step on the ladder is often to supply additional labour to clients.

Hudson Contract has seen this happen literally thousands of times over the years, when operatives supply substitute or additional labour rather than turning work down.  And while this is usually a positive step, there are circumstances that give rise to caution.

HMRC have identified huge problems with tax fraud amongst labour providers, and have started to quiz businesses about their sources of labour, using detailed questionnaires in an attempt to tackle the problem.  In many, if not most cases, there is no suggestion of deliberate fraud . . . but tax legislation is complex, and new businesses can easily get things wrong.

HMRC expect companies to do ‘due diligence’ on their labour supply chain and can impose penalties if this hasn’t been done.  Sanctions include refusing the entitlement to claim back VAT, loss of gross CIS status, and even criminal prosecution if you are deemed to have been complicit.

On top of this there are the Agency Worker Regulations, the Immigration and Asylum Act, CDM regulations and other pieces of legislation that could catch you out.

The risks for the individual labour suppliers are even worse.  As sole traders they could lose everything they own personally, and as directors of limited companies they can fall foul of debt transfer provisions and criminal prosecution.

Contact Hudson Contract before HMRC contact you

Hudson Contract Managing Director Ian Anfield warns:  “Asking gangmasters, small companies or lads on site to supply increasingly large numbers of workers might seem like a cheap and easy way of procuring labour, but it could easily come back to bite you.

“The golden rule is that labour providers must be properly vetted in terms of VAT registration, a director’s background check, credit check, insurances, and of course immigration and tax compliance.  Properly drafted contracts are essential between businesses and labour providers, and everyone must be fully aware of where the risks and responsibilities lie.

“If you would like assistance with due diligence on your labour suppliers, we think it’s a good idea to contact Hudson Contract before HMRC contact you.”