A crackdown on small sub-contractors within the construction sector, seen as easy pickings by the taxman, has boosted tax revenues at HMRC by 18% over the last year but critics argue that targeting bigger business would prove much more fruitful, reports Harris & Co accountancy services.
The tax department has increased its yield from the building industry to £78.9m in 2011/12 – its highest in the last five years - up from £66.9m in the previous year, although NoPalaver director, Graham Jenner, believes the revenues gained are small fry compared to what could be brought in elsewhere.
‘HMRC likes to target the construction sector because a little bit of extra effort on compliance work often turns up extra tax revenue from contractors and sub-contractors. However, the compliance yield from the construction sector is very small compared to the yield from HMRC’s overall compliance investigations. This begs the question as to why HMRC is spending time pursuing small contractors and sub-contractors, when it could be focusing its limited budget on the tax affairs of much bigger businesses.’
Ensuring sub-contractors and self-employed workers comply with HMRC’s Construction Industry Scheme (CIS) is the focus of much of the tax department’s work in the sector. Introduced in 2007, CIS was set up to stop, among other abuses, the prevalence of ‘disguised workers’ – where contractors treat employees as sub-contractors for the purposes of avoiding tax – but Jenner is concerned as to easy it is to incur penalties and fines under the scheme.
‘It can sometimes be hard for contractors to work out whether their sub-contractors should be covered by CIS or if they should be treated as an employee.’