![Sarah Baron - Menzies Accountant](https://www.menzies.co.uk/wp-content/uploads/2015/12/Sarah-Barron_320X238-150x150.jpg)
Sarah Barron – VAT Senior Manager
We have seen an increasing number of checks being undertaken by fraud investigators at HMRC into businesses which use labour providers, particularly in the construction sector.
What do these checks mean for the construction sector?
Typically this has focussed on builders in the residential sector, who are usually in a repayment position. VAT repayments have been withheld whilst HMRC investigate the possibility of fraud in the supply chain. The HMRC Fraud Investigation team have asked for proof that construction companies are undertaking a high degree of due diligence before engaging with a labour provider, and directing the builders to guidance published in May 2017 on the extent of checks which should be undertaken.
What are HMRC checking?
These checks go much further than confirming that the supplier has provided you with a valid VAT number and that they have CIS gross payment status. They encompass, not only the tax compliance of the supplier, but also checks that they comply with Living and Minimum Wage requirements and take steps to identify and eradicate modern slavery and illegal working.
If HMRC judge that businesses knew, or should have known, that VAT was being evaded in a supply chain, they will refuse to repay VAT on those invoices. HMRC’s guidance states that failure to understand and confirm compliance within the supply chain will be taken into account in considering whether businesses should have known about VAT fraud in their supply chain.