Temporary Staffing Fraud: Why HMRC Could Target Your Construction Business

HMRC is ramping up efforts to combat VAT fraud in the staffing industry.  Unfortunately, some compliant businesses are increasingly being caught in the crossfire.

In recent months, HMRC has identified multiple staffing agencies that have defaulted on millions of pounds in unpaid VAT. These agencies appear legitimate but are often part of fraud operations which disappear before settling their tax liabilities. So, what is the real sting?  HMRC may pursue the end user of the labour where they believe that the engager “knew or should have known” that a supplier was involved in fraud.

This is known as the Kittel Principle. Even if your business has paid VAT in good faith and had no knowledge of fraud, HMRC can deny your VAT claim if they believe your due diligence on the supplier was lacking.

What to watch for:

• Extremely low pricing

• Suppliers with little or no online presence

• Frequent name or director changes

• Unusual or missing business documentation

What you should do:

• Implement and document a clear supplier due diligence process

• Check VAT registration, Companies House filings, and references

• Retain all records of checks and communications

• Seek advice if anything seems off

With HMRC under pressure to recoup lost tax, this kind of enforcement action is only expected to increase. A proactive review of your supply chain and internal processes is your best defence.

If you need help reviewing your supplier vetting procedures or understanding the risks, please get in touch.  We are here to help.

Further reading: Construction News.