Construction firms will always fall foul of the tax authorities, until they get their records straight.

the-most-shocking-construction-tax-fraud-cases

Given the billions of pounds of tax liabilities facing the UK arms of global corporates, it’s a wonder that HMRC even bothers to target construction firms. Amazon, Vodafone, Starbucks and Goldman Sachs are among high-profile corporations recently accused of tax avoidance and tax evasion on a truly massive scale.

One rule for plcs – another for SMEs?

Yet, according to the latest research by contracting sector specialists NoPalaver, HMRC’s entire yield from construction tax in 2012-2013 was a measly £78.9 million. The question posed by NoPalaver’s Graham Jenner must be asked by many:

“Why is HMRC spending time pursuing small contractors and sub-contractors, when it could be focusing its limited budget on the tax affairs of much bigger businesses?”

The tax authorities are silent on that subject, but eager to admit that construction will stay squarely in their sights.

Construction tax blitz creates jobs

Remarkably, as the public sector continues to shrink under the remorseless pressures of austerity, HMRC has found the resources to recruit an extra 100 staff to target construction.

It’s a puzzle that a sector which has suffered more than any other since the global meltdown should be the focus of HMRC, but the strategy is clearly working. HMRC admit the £78.9m tax yield highlighted by NoPalaver was up 18% on the previous year, and to a five-year high.

Naturally, it highlights cases where construction companies have set out to defraud the Exchequer of VAT and income tax payments.

Savate set to break tax fraud records

The criminal case likely to set records for such fraud is currently going through the courts, following a long-running investigation which HMRC dubbed Operation Savate – for reasons not yet evident – and involving 24 defendants. Earlier notable prosecutions include:

  • Operation Concentric. Tax evasion and laundering valued at several million. 24 arrests.
  • A family firm which created bogus invoices for subbies. Estimated fraud of £4.6m.
  • A student jailed for claiming £1.5m on fraudulent exports of construction equipment.
  • Operation Spartan. Said to be a large-scale VAT fraud, but the case collapsed.

As the latter failure shows, the paper trail for some supposed construction tax frauds can be so complex that HMRC can’t bring a successful case. And the amounts involved are still extremely small when compared with the sums involved with some global corporates, who signed ‘sweetheart deals’ when HMRC came calling. The most shocking fraud – in terms of the people involved, rather than the headline fraud total – was made public this year.

Ex-HMRC helpline adviser went rogue

A former national co-ordinator for HMRC’s national construction industry helpline was jailed for three years, for his part in a complex tax swindle, involving himself and two fellow directors of an accountancy practice.

So, what should directors at firms wishing to avoid costly and time-consuming scrutiny of their accounts do? HMRC’s own Guide to the Construction Industry Scheme is essential reading, for everyone wishing to stay within the construction tax laws.

Things to consider:

  • Be aware that HMRC’s blitz on construction firms and subbies is here to stay.
  • Check your tax records to see if they conform with the Construction Industry Scheme.
  • Never argue with tax inspectors, about the ‘unfairness’ of it all. There’s only one winner.

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