HMRC has issued a warning – you need to know about labour fraud in construction and how it impacts you, especially if any of the following is applicable:
- you work in the construction industry;
- your business is in construction;
- you spend more than £3 million on construction in a year;
- you pay subcontractors for construction work.
Criminals create companies that become part of the labour supply chains of legitimate businesses, however the criminal companies will often go bust without paying any tax to HMRC, or simply disappear.
If you’re a worker
Common signs of labour fraud which might affect you include: no online presence or website; no physical office address; lack of documentation (such as contracts); payments from unknown third parties. Companies involved in labour fraud may want you to work through particular labour suppliers or agencies, or pay you through a specific company. But don’t forget that many of these arrangements are legitimate, so make sure you do your homework. You might prefer to only work with well-established companies that have a good reputation.
Also, make sure you check your tax records directly with HMRC on a regular basis and ensure that everything is correct. If you’re self-employed, your Construction Industry Scheme (CIS) deductions may not be paid to HMRC. This could mean you may not be able to claim a repayment that you were expecting. Your repayment may also be paid directly from HMRC to someone else, such as an agent or nominee.
If you’re a business owner
If your business has outsourced its workforce, it’s YOUR responsibility to carry out due diligence on your supply chain. Beware of labour costs seeming too cheap, unnecessarily long supply chain, inconsistencies in paperwork, directors with no construction experience, a history of liquidations, and no online presence. At the very least you should check their VAT registration and request evidence of returns and payments to HMRC, and keep records of these checks which you regularly update.
You MUST be clear about who pays the workers and how they’re paid. Your potential suppliers might use a number of companies to create a complex labour supply chain in order to hide the worker from HMRC, or for other offenses, such as modern slavery.
You MUST ensure your workers are paid the correct amount. You should check the qualifications of the workers, if they are hired by fraudulent companies they might not have a current Construction Skills Certification Scheme card or false details.
HMRC Warning To Businesses
If we find that a business knew, or should have known, about labour fraud in the supply chain we may:
- deny other businesses in the same supply chain the right to recover VAT input tax
- remove a subcontractors gross payment status
- charge a penalty for inaccurate returns
You may also be responsible for any unpaid taxes, such as CIS deductions, including interest.
How to report potential fraud or tax avoidance
Contact HMRC to report tax fraud or avoidance if you have concerns about:
- a supplier or hirer of labour
- unpaid VAT
- incorrect CIS deductions