HMRC ‘nudge’ letters

Here we focus again on the construction industry.  This is by design rather than by chance as the construction industry currently finds itself under significant scrutiny from HMRC.  In our last article, we analysed the dangers posed by labour only subcontractors incorrectly utilising the DRC, and this week we take a look at HMRC’s latest ‘nudge’ letters aimed squarely at the construction industry. 

The Letter

HMRC has issued a significant number of targeted letters to construction businesses pointing to the risks of failing to operate the Construction Industry Scheme (CIS) correctly.  While under the guise of education, the letters serve as a reminder and forewarning of HMRC’s increasing compliance activity.  Ally this, to Labour’s commitment to recruit 5,000 new compliance officers and it is clear that HMRC activity will ratchet up and the construction industry is one of the main targets.

Forewarned is Forearmed

While these latest ‘nudge’ letters are a prelude to increased HMRC activity, they are also an opportunity for construction businesses to review their CIS operations to ensure compliance and be ready for the incoming compliance review.   Furthermore, it allows  construction businesses to take the necessary steps to audit/ review their suppliers to ensure any non-compliance in the supply chain is remedied.

As such, we would advise that our construction clients undertake thorough reviews of their internal CIS compliance, as well as undertaking taking steps to verify the compliance of their suppliers. 

Undertaking the Compliance Review

We would advise our clients undertake a full review of CIS compliance, with a particular focus on the following common errors (that we discover during audits):

• Construction businesses failing to treat a labour supplier/ umbrella company as a subcontractor for the purposes of CIS and therefore failing to make the appropriate deductions.
• A failure to obtain adequate evidence by a contractor to support a claim by a subcontractor for materials (which are not subject to CIS deductions).
• A failure by a contractor to give sufficient consideration and due diligence to the employment status declaration on a monthly return.
• The non-recording of subcontractor verifications.
• The failure to adhere to HMRC change notices relating to the payment status of subcontractors.

Opportunity Knocks

While the above are examples of the common errors and misunderstandings that we find during our audits, they are not the only examples, and attention must be paid to all areas of CIS compliance.  Of course, reviews and audits take time, which in the current climate can draw businesses away from their commercial focus.

This is where we come in.  At Chartergates we can conduct the review (either an internal review or a review of your suppliers) expeditiously and without moving your focus away from driving your business forward.  If you would like to discuss a CIS compliance review, get in touch with your usual contact at Chartergates or contact Herminder by emailing hermindersandhu@chartergates.com.