Construction sector sees tax evasion clampdown

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HMRC tax investigation yields within the construction sector saw a 17 per cent increase during the 12 months to March 2015…

The construction sector has become a significant focus for HMRC, as it clamps down on tax evasion. Figures from national accountancy group UHY Hacker Young revealed there was a 17 per cent increase in HMRC’s yield from construction industry tax investigations (from £131m to £154.2m) in the year to the 31 March 2015.

False employment is, according to HMRC, becoming a significant problem within the industry. This is due to the number of self-employed workers and subcontractors—many of whom reportedly should not be registered as self-employed. This, coupled with the culture of cash in hand jobs, has led to the number of tax investigations carried out by HMRC more than doubling over the past five years.

Problems have arisen due to some workers classing themselves as self-employed, despite working through intermediary companies. These workers should be subject to the pay as you earn (PAYE) system of taxation. HMRC said the result of incorrectly registering as self-employed meant employers and workers were paying less National Insurance contributions than they should.

Under new changes brought into force in April 2015, employment intermediaries are required to provide quarterly reports showing all the workers on their payroll who are not subject to PAYE.

Workers who are accepted as self-employed by HMRC are required to hold a sub-contractor certificate. Without this the contractor should deduct tax from payments made.

However, self-employed workers or sub-contractors often do not have the correct paperwork. Failure to produce this when under investigation by HMRC can lead to companies or individuals having to backdate PAYE and National Insurance contributions. Additionally, HMRC can charge interest and up to 100 per cent of the tax in additional penalties.

UHY Hacker Young’s tax partner Roy Maugham said: “The construction industry is seen as an easy target by HMRC and has been subjected to increasingly intense investigations in the last few years.

“Construction typically has a far higher proportion of self-employed workers and sub- contractors than most sectors, and they will often move jobs more frequently.

“When this happens it’s more likely that mistakes or omissions might be made to paperwork or a worker’s tax status.

“Even if a contractor believes themself to be, or is classed as self-employed by other organisations, it does not necessarily mean that HMRC will accept this status.

“Individuals and companies working in the construction industry must make sure that they have all the relevant paperwork otherwise they risk a high penalty from HMRC.”

Maugham added: “The increased yield from tax investigations and the new rules indicate just how much HMRC are clamping down on tax evasion in the construction industry, and this trend is likely to continue in the future.”

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