Throughout 2022, HMRC significantly stepped up its enforcement efforts against fraudulent labour supply chains in the construction industry.

At the heart of the crackdown were “mini-umbrella company” frauds — abusive structures where rogue operators set up hundreds or even thousands of small, short-lived companies to employ small groups of workers.

The aim of these schemes was to unlawfully claim tax reliefs like the Employment Allowance multiple times and to avoid paying full VAT and PAYE liabilities.

HMRC’s Fraud Investigation Service led targeted operations, resulting in multiple arrests and public warnings to end-client companies, agencies, and umbrella operators alike.

Alongside tackling mini-umbrellas, HMRC intensified broader compliance checks across the construction sector.

Officers conducted unannounced site visits, reviewed contractor records, and increased scrutiny of Construction Industry Scheme (CIS) filings and employment status assessments.

The Revenue also made clear that end clients — including construction firms — could be held responsible if they failed to spot or prevent tax fraud in their labour supply chain.

This aggressive stance was part of HMRC’s broader campaign against labour market abuse, targeting sectors known for high use of flexible, subcontracted workforces.

Why This Matters to Construction Clients

Construction businesses face heightened risk in their use of subcontractors, umbrella companies, and agency workers.

If a supply chain contains fraud — even several steps removed — HMRC can:

• Deny tax deductions
• Revoke CIS gross payment status
• Issue penalties
• Pursue unpaid taxes up the supply chain under anti-fraud powers

Practical steps for construction firms:

• Conduct due diligence on all labour providers — verify legitimacy, accreditation, insurance, and tax compliance
• Scrutinise invoices — look out for unusual company names, short trading histories, frequent changes in supplier entities
• Audit subcontractor payments — check that tax deductions and employment rights are being properly handled
• Maintain full documentation — contracts, verification records, and supplier vetting processes are critical to demonstrating compliance

If firms cannot show they took reasonable steps to prevent fraud, HMRC can hold them jointly and severally liable — even if they did not directly benefit from wrongdoing.

Given the construction sector’s historical exposure to tax avoidance schemes, doing nothing is no longer an option.

Clients of Ardent Tide are protected by full labour supply compliance management and rigorous supply chain checks.

Our services ensure that businesses can engage subcontractors confidently — without fear of being dragged into HMRC investigations.