The yield from HMRC compliance investigations of the construction sector – which has long been believed by the department to encourage tax avoidance through false self-employment – grew by 18% to £78.9m in 2011/12, from £66.9m the 12 months before.
The most recent amount was the highest in five years, rising from £56m in 2006/7, shortly before the introduction of the Revenue’s construction industry scheme (CIS) to regulate the taxing of subcontractors’ pay by contractors.
It can be hard for firm to work out if a subbie should be covered by CIS or be treated as an employee, according to Graham Jenner, director of the NoPalaver group, which acquired the government data through a freedom of information request. He claimed the taxman sees construction businesses as easy target of a wider effort to boost income through compliance efforts.
“Working arrangements in the sector are complex, with self-employed subcontractors moving between jobs on a regular basis. Irregular working patterns like this create plenty of opportunities for errors with paperwork and tax status,” said Jenner, whose company provides accounting services to contractors and personal service companies.
He stressed the importance of good recordkeeping by construction businesses and workers “to prove to HMRC that their tax treatment of a sub-contractor is justified”, and went on to claim the annual revenue from builders and property developers is small compared to that from the Revenue’s overall compliance investigations.
The situation “begs the question as to why the department is spending time pursuing small contractors and subcontractors when it could be focusing its limited budget on the tax affairs of much bigger businesses”, added Jenner.
Article from www.taxation.co.uk written by Graham Jenner of No Palaver Umbrella