HMRC warned today that there is an increased risk that some labour suppliers may be involved in tax evasion. Where it can be shown that a business knew, or should have known, that transactions entered into were connected with the fraudulent evasion of VAT, the business could lose its right to recover the VAT incurred on those transactions. Businesses particularly affected include those in catering, food processing, construction, hotels, leisure and security.
HMRC has also warned there is a risk that employers could unknowingly hire workers who are in the UK illegally, or are earning below the National Minimum Wage. This could result in enquires by HMRC and costs for the business, damaged reputation and even prosecution.
The taxman says that failure to carry out “appropriate checks” may be evidence that you knew or should have known of the fraud. HMRC are not willing to tell you exactly what checks you should undertake. The checks you will need to make, and the extent of them, will vary depending on the individual circumstances. You should ask the most appropriate questions required to protect yourself in the particular circumstances of your individual transactions.
Her Majesty’s Revenue & Customs have suggested that businesses should ask
- Does the labour provider need and have a Gangmaster Licensing Authority (GLA) licence?
- What is the history of the business?
- Is it a live company on the Companies House register?
- Have you visited the trading premises? Are they consistent with the business of finding and employing workers?
- Do they obtain workers from other labour providers?
- Are their proposed fees realistic, allowing the business to meet statutory minimum wage and tax obligations and still make a profit?
- Do they have Employers’ Liability Insurance?
- Are you making payments to a third party, for example a factoring agent? If so, why?
- Is the business VAT registered and set up for PAYE? Obtain a copy of the VAT certificate.
- Is the business paying its workers the National Minimum Wage?
- Do the workers being supplied have the right to work in the UK?
The taxman also suggests the following checks:
- Check directors’ identities by asking for passports;
- Ask for copies of Certificate of Incorporation, VAT registration certificate and GLA licence;
- Verify VAT registration details with HMRC before you use them;
- Ask for their bank details
What does it mean for me?
If you don’t carry out this due diligence, and keep records of it, you could end up losing a lot of money in unclaimable VAT, as well as facing other large tax liabilities (e.g. PAYE) and face swingeing penalties.
How can Lynam Tax experts help?
*If you are unsure as to how to carry out the appropriate due diligence measures, or are undergoing an enquiry and HMRC are alleging that you have failed to carry out appropriate checks, then you may need specialist help. Lynam Tax specialists have extensive experience with regard to the labour supply industry and HMRC enquiries.
For a free initial consultation called Paul Lynam now on: 0845 643 9997