Insights

The UK construction industry is being targeted by HMRC again with the launch of a new taskforce which will cover the London area. HMRC expects to raise £3 million of additional tax as a result of these efforts and will be scrutinising business activities and paperwork to spot errors that might indicate tax has been underpaid.

The construction industry already faces increased regulatory complexity following the introduction over the years of employment status scrutiny, CIS compliance and sometimes gross payment status; all introduced to reduce instances of tax avoidance. This means that mistakes can often be made without realising it. If you are involved in construction projects, it is important that all returns and tax payments are submitted strictly within deadlines, and that worker status checks are regularly undertaken with contracts for services being regularly updated. The former will reduce your exposure to tax enquiries and the latter will ensure that should you have an enquiry in relation to status issues, you are well equipped to deal with it quickly. This is especially important now that a taskforce is in operation in London.

What is a taskforce and how does it work?
Taskforces are continuously being launched by HMRC as they have proven to be successful in raising additional taxes. They are established to focus on specific industry sectors or geographical areas and are launched when HMRC suspects there is a significant volume of undeclared activity within a particular industry sector or region.

A taskforce is made up of a multi-disciplinary team of tax specialists who will use local knowledge to identify suspects; this might involve actual surveillance of activity as well as computerised risk profiling using the Connect system. For example, an undercover investigator might enquire about an extension to a fictitious property to uncover possible malpractice within a construction firm or observe site activity to spot anomalies. They will also use social media and other readily available online information to spot whether individuals appear to be living beyond their means.

Once an enquiry is instigated, it is likely to involve a thorough investigation into all aspects of the tax affairs of the business and the individuals involved; PAYE, VAT, NICs, corporation tax and personal tax. Once HMRC have instigated an enquiry, the right to make a voluntary disclosure of potential tax underpayment has effectively been forfeited, therefore if additional tax liabilities are uncovered as a result of the enquiry, full penalties will apply in addition to the tax liability itself and interest on that liability.

If you are involved in the construction industry, it is advisable to have a tax review to highlight and correct any weaknesses. This will help you avoid an enquiry; enable you to make a voluntary disclosure if there are any anomalies, thus enabling you to benefit from reduced penalties; and ensure that should you have an enquiry you can quickly and efficiently deal with the queries raised by HMRC.

For more information on making a voluntary disclosure to HMRC or dealing with a tax enquiry please contact Anne Eager.