A group of seven fraudsters have been sentenced for their role in a massive £22m construction tax scam that defrauded HMRC through fake payroll schemes. Their elaborate deception highlights the critical importance of due diligence when working with payroll companies and labour suppliers.
The Scam
The criminals set up bogus payroll companies that were supposed to handle VAT and Construction Industry Scheme (CIS) payments on behalf of subcontractors. Instead of passing these payments to HMRC, they pocketed the money themselves. The scam was orchestrated by Daniel Newton (38), Philip Bailey (36), and Sean Dean (41), with the support of their co-conspirators Lee Hudson (56), Sarah Gillard (41), Bradley Mortimer (39), and Kevin Ratcliffe (43).
Sentences ranged from 27 months to over nine years for offences including cheating the public revenue, money laundering, and organised crime activities.
HMRC Investigation
The fraud was uncovered following a joint investigation between HMRC, Kent Police, and the Crown Prosecution Service. Prosecutors revealed that:
- Fake payroll companies were established to receive VAT and CIS contributions from legitimate construction firms.
- These companies diverted the money into personal bank accounts rather than paying HMRC.
- Business owners like Ratcliffe received kickbacks for channeling payments through the fraudulent scheme.
- Cash couriers Gillard and Mortimer helped launder the stolen funds.
Julius Capon of the Crown Prosecution Service said: “These criminals stole £22m from the taxpayer. Instead of paying VAT and CIS contributions to HMRC, they pocketed the money themselves. We have commenced proceeds of crime proceedings to recover the stolen funds.”
HMRC Warning: Protect Your Business
Ian Hackett, Operational Lead in HMRC’s Fraud Investigation Service, stated: “The tenacity and expertise of the investigators involved in this joint investigation has protected millions of pounds of taxpayers’ money, which is needed to fund our public services.”
This case serves as a stark warning to construction companies. If your payroll provider is not compliant, HMRC will pursue those responsible – and that could include you.
EEBS Advice: How to Protect Your Business
To avoid falling victim to payroll fraud or unknowingly being implicated in non-compliance, you must conduct thorough due diligence on any payroll company or labour supplier you work with.
Here are key steps to take:
Verify Your Payroll Provider
- Request confirmation that their tax affairs are up to date. This should be checked quarterly.
- Obtain a copy of their VAT registration certificate to confirm HMRC compliance.
- Use a company that is reputable, specialises in the industry that you work in with a proven track record of compliance.
Scrutinise Your Supply Chain
- Avoid contractual arrangements that allow your supplier to outsource services to another company without your knowledge.
- Ensure any travel and subsistence schemes comply with HMRC guidelines, especially offshore arrangements.
- Request evidence that your supplier continuously reviews worker contracts to confirm self-employment status.
- Check whether any agency rules apply to your workforce.
- Confirm that your supplier meets employment intermediary reporting requirements and submits relevant reports to HMRC.
The EEBS Difference
Nick Pilgrim, MD of EEBS commented “this is by no means the first time we’ve heard of these frauds. More of a concern, however, is that if HMRC feels that contractors have failed to apply with their due diligence obligations, HMRC may choose to pursue the contractor for the unpaid tax!
If all this sounds like a hassle, EEBS can take care of it for you. With over 23 years of experience and a business model that has never been challenged by HMRC, we ensure full compliance from day one.
Don’t let fraudsters put your business at risk. Get in touch with EEBS today to safeguard your company and stay compliant with HMRC payroll regulations.
