HMRC target organised crime within construction and temporary labour supply arrangements

07 August 2020

Users of extended supply chains such as in the construction industry have been targeted by HM Revenue and Customs' Fraud Investigation Service (FIS) in a concerted attempt to identify fraudulent activity. HMRC has confirmed that it is becoming increasingly concerned that supply chains are being infiltrated by those intent on abusing the tax system through the creation of “buffer” companies which, on the face of it, portray a compliant façade. However, what lurks beneath the surface is often a myriad of complex structures which must be investigated further.  

Tax compliance is never far from the top of the business agenda. There has never been a more appropriate time to review and enhance your supply chain due diligence process to ensure it is both “active” and “meaningful” i.e. the right questions are being asked and all responses are thoroughly investigated.

Names like “Ablessio” and “Kittel” may be alien to many people but replace these names with words like “Deregistration” and “Liability” and the reason for comprehensive due diligence becomes ever clearer.

When VAT abuse of a VAT registration has been identified, HMRC has the right to remove any associated business from the VAT register (“Ablessio”) and can also deny an input tax credit (“Kittel”) on the basis that the company knew or should have known that VAT abuse was present in the supply chain.

Indeed, HMRC has begun to use the VAT Act 1994, s69 to levy civil penalties to the company which, in certain circumstances, can be transferred to the officers of the company having regard to the degree of culpability of the company officers.         

Finally, let us not forget the Construction Industry Scheme (CIS) where compliance failures at any stage in the supply chain can lead to the cancellation of Gross Payment Status with immediate effect.

Given current market conditions, it is important to plan for every possibility and to leave nothing to chance.

Should you wish to discuss any of the points raised, or indeed you have received a letter from HMRC regarding fraud within your supply chain, please give us a call on 0121 445 6178 or email to see how we can help you in preparing a defendable position.