Check for signs of labour fraud in construction

What labour fraud in construction is

Labour fraud in construction is the creation and use of fraudulent labour supply chains within the construction industry. It’s part of a wider group of crimes known as organised labour fraud.

You need to be aware of labour fraud in construction if any of the following apply:

• your business is in construction
• you spend more than £3 million on construction in a year
• you pay subcontractors for construction work
• you work in the construction industry

Criminals create companies that become part of the labour supply chains of legitimate businesses. They then pass the related Income Tax and VAT liabilities through a number of shell companies.

The final company will either:

• default without paying any tax to HMRC
• go missing

Recognising signs of labour fraud

Some common signs of labour fraud include:

• labour costs that seem too good to be true
• no online presence or website
• no physical office address
• lack of documentation (such as contracts)
• businesses with a short life span
• frequently changing businesses in the supply chain (also known as ‘phoenixing’)
• directors with no experience of working in construction
• unusually long supply chains
• inconsistencies in paperwork (such as invoice dates)
• payments from unknown third parties
• directors with a history of going into liquidation

If you’re an employer or owner

If your business has outsourced its workforce, it’s your responsibility to:

• check the credibility of your supply chain
• carry out due diligence checks
• be clear about who pays the workers and how they’re paid

You should keep a detailed record of all the checks you do.

KnowCheck your suppliers

You can check a companies VAT registration with HMRC. You should also ask for evidence of returns and payments to HMRC.

If you use another company to hire workers, you should check the relationship between the supplier and the workers. Make sure you understand who is responsible for paying them.

Some suppliers may use a number of companies to create a complex labour supply chain. This way of obtaining labour can:

• hide the worker from HMRC
• create opportunities for other offenses, such as modern slavery

KnowCheck your workers

You must make sure your workers are paid the correct amount.

You should check the qualifications of the workers hired. Workers hired by fraudulent companies may have:

• no Construction Skills Certification Scheme card
• false details

You should also check the employment status of your workers to make sure it matches their working arrangements.

If you’re a worker

You may be a victim of labour fraud if you’re a worker in the construction industry.

Companies involved in labour fraud may only want you to work through labour suppliers or agencies. They may also want to pay you through either:

• your own limited company
• an umbrella company
• a payroll company

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 employed through an agency, you can check your rights as an agency worker.

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

If you do not report labour fraud

If weHMRC findfinds 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.

More information about labour fraud in the construction industry

Watch a video about labour fraud in the construction industry.

Labour fraud in the construction industry.

You will learn about the risks of fraud in the construction industry and the warning signs to look out for.