Construction businesses continue to face increasing scrutiny from HMRC, particularly in relation to labour supply chains, worker status and compliance processes.
Many businesses are confident they have appropriate arrangements in place. However, recent reviews we have undertaken within the sector have identified a range of risks that organisations often do not realise they are exposed to until those arrangements are examined in detail.
In our experience, businesses frequently focus on Construction Industry Scheme (CIS) compliance without first considering whether the underlying worker arrangements are correct. As a result, issues in one area can often lead to wider exposures across employment taxes, National Insurance contributions (NIC) and supply chain compliance.
Areas commonly giving rise to risk
Employment status
Many individuals operating as sole traders or subcontractors are assumed to be self-employed without a formal assessment being undertaken.
If HMRC concludes that a worker is in fact an employee for tax purposes, the engager may become liable for PAYE, National Insurance, interest and penalties. In some cases, additional employment law obligations may also arise.
CIS compliance
Even where workers are genuinely self-employed, CIS compliance remains an area of significant HMRC focus.
Common issues can include:
- Failing to register as a contractor when required.
- Incorrect verification of subcontractors.
- Incorrect application of gross payment status.
- Failure to make appropriate CIS deductions.
- Errors in monthly CIS returns.
- Inadequate records to support material cost deductions.
- Failure to issue payment and deduction statements.
These issues can lead to tax assessments, penalties and interest, as well as lengthy HMRC enquiries.
IR35 and off-payroll working
Medium and large businesses engaging workers through Personal Service Companies (PSCs) or other intermediaries have responsibilities under the off-payroll working rules.
Many organisations have never reviewed whether PSCs exist within their workforce or labour supply chain, leaving them exposed to potential PAYE and NIC liabilities where the rules have not been considered correctly.
Joint & Several Liability and umbrella companies
Recent legislative changes mean that businesses using labour supplied through umbrella company arrangements may face increased exposure where PAYE obligations are not met elsewhere in the supply chain.
In many cases, businesses have limited visibility of how workers are being engaged beyond their immediate contractual arrangements.
Agency labour supply chains
Construction businesses often engage workers through multiple agencies and labour providers.
Without appropriate due diligence, it can be difficult to demonstrate that workers are being engaged correctly or that those responsible for operating PAYE, NIC or other compliance obligations are fulfilling their duties.
Questions every construction business should consider
- Do we fully understand how workers are engaged throughout our labour supply chain?
- Have we assessed whether workers operating as subcontractors are genuinely self-employed?
- Are our CIS processes robust and compliant?
- Do any workers provide services through PSCs or other intermediaries?
- Are umbrella companies present within our supply chain?
- Could we demonstrate appropriate due diligence if HMRC reviewed our arrangements?
- Do contracts, policies and internal procedures reflect current legislation and HMRC expectations?
We are here to help
Our specialist Employment Tax team works with construction businesses to provide:
- Workforce compliance health checks.
- CIS compliance reviews.
- Employment status assessments.
- IR35 and off-payroll working reviews.
- Supply chain due diligence reviews.
- Contract reviews.
- Training for finance, procurement and operational teams.
- HMRC enquiry support and representation.
Our objective is simple: to identify potential issues before HMRC does and help businesses implement practical, commercially focused solutions.
If you would like to discuss your workforce arrangements or understand how exposed your business may be, please get in touch with your usual adviser or a member of our Employment Tax team.
