Don’t Be Complacent About Compliance

A Wake-Up Call for the Construction Industry

The UK construction sector is under increasing pressure to tighten its compliance practices. From labour supply chains to VAT fraud risks and off-payroll working, HMRC is zeroing in—and the consequences of non-compliance can be severe.

Many construction firms still view compliance as a paperwork burden or something to worry about later. That attitude is no longer sustainable. If you’re not taking a proactive approach to topics like Right to Work, VAT, and IR35, you’re leaving your business exposed.

1. Right to Work Checks: Site Access Isn’t Enough

It’s not just about having a name on a register or a pass to get on site. Construction firms—especially those working with subbies or labour agencies—must carry out statutory Right to Work checks on all workers before they start.

This means:

• Verifying identity documents or using the Home Office online system
• Keeping copies of the checks
• Monitoring visa expiry dates for non-UK workers

Failure to comply can lead to civil penalties of up to £20,000 per illegal worker, reputational damage, and even criminal sanctions in cases of deliberate evasion.

If you’re relying on labour agencies, remember: the liability may still rest with you if you haven’t verified they’re doing the checks properly.

2. VAT Checks: Don’t Get Caught by the Fraud Chain

The construction industry is a high-risk sector for VAT fraud, particularly carousel and missing trader fraud. HMRC expects firms to conduct due diligence on suppliers and subcontractors, especially under the CIS (Construction Industry Scheme).

Additionally, the VAT domestic reverse charge—introduced specifically for the construction sector—means:

• You may no longer charge or reclaim VAT on certain supplies
• Accounting systems must be up to date and configured correctly
• Mistakes can lead to unexpected liabilities and penalties

VAT compliance isn’t just a matter for finance teams. Project managers, commercial teams, and directors must understand how it affects contracts, payments, and liability.

3. IR35: Know Who Really Works for You

With the rise of off-payroll labour in construction, many firms now engage contractors via limited companies or umbrella setups. But since the IR35 reforms, medium and large construction businesses are responsible for determining the employment status of those contractors.

Misclassifying workers as self-employed when they should be treated as employees for tax purposes can lead to:

• Backdated tax and National Insurance
• Interest and penalties
• Legal disputes and reputational harm

Key risks in construction include:

• Using the same contractors for years without reassessment
• Blanket IR35 decisions across entire trades
• Lack of proper Status Determination Statements (SDS)

IR35 compliance needs to be case-by-case, well-documented, and regularly reviewed—especially as project scopes, roles, and responsibilities evolve.

Build Compliance Into the Foundations

Construction businesses are already juggling thin margins, supply chain volatility, and skilled labour shortages. The last thing you need is HMRC knocking on your door due to avoidable compliance failures.

Here’s how to stay protected:

• Conduct internal audits of Right to Work, VAT, and IR35 processes
• Vet suppliers and labour providers with documented checks
• Train site managers and commercial teams on compliance expectations
• Document everything—from worker checks to IR35 decisions

Conclusion: Cut Corners Now, Pay Later

In construction, cutting corners can be deadly on site. The same principle applies to compliance. It may not be as visible as scaffolding or steelwork, but it’s just as structural to your business.

HMRC is watching. Don’t be the weak link in your supply chain.