Construction Industry Council chief executive Graham Watts has urged the construction sector “to start employing the people that work for it” after dawn raids by HM Revenue & Customs officers uncovered a multi-million pound tax fraud.
Twenty men and three women from the West Midlands, Staffordshire, London and Manchester were last week arrested on suspicion of conspiracy to cheat the Construction Industry Scheme and money laundering offences totalling more than £6 million.
The group, accused of what is known as ‘missing trader’ fraud, is believed to have set up an artificial chain of companies that subcontracted labour to the construction industry.
The firms took gross salary payments from contractors, from which they deducted tax and National Insurance payments. They then folded the bogus companies before they had to file their annual tax returns.
Calls are now being made by trade unions, and the CIC, for increased levels of direct employment to tackle such scams.
Mr Watts said: “Why shouldn’t our contractors and supply chains employ people properly? The lack of a directly employed labour force leaves the industry wide open for this sort of abuse.
“The construction industry does feel the bumps of recession, but it is still an industry that is here permanently, and it is extremely old fashioned to continue working this way. The industry should start employing the people that work for it.”
Unions plan to use the case to highlight their long-running campaign for an extension of the Gangmasters Act – a move this year recommended by many influential people including Labour MP Jim Sheridan and recent construction deaths inquiry chairwoman Rita Donaghy.
General secretary at construction union Ucatt Alan Ritchie said: “Introducing laws which mean that companies cannot supply labour until they have passed prohibitory tests would immediately exclude criminals from supplying labour.”
Mr Ritchie also backed Mr Watt’s calls for a drive on direct employment, and said: “These issues would not arise if companies employed workers directly.”
More than £130,000 was seized in the HMRC raids, as well as bank accounts, paperwork and computers. Class A drugs, scales and dealer apparatus were also found. All 23 accused have been questioned, and bailed until January 2010.
HMRC suggested thousands of construction site workers may have been robbed of the tax and national insurance contributions they believe they had paid over the past six years.
The department said bogus agencies involved in such scams would apply for gross payment status under the CIS, which sets out rules for how payments to subcontractors must be handled by contractors in the construction industry.
They could then contract out the work to a subcontractor, who would go missing with the tax owed.
The first firm would then cover the transactions by false paperwork, used to fabricate their tax records and buy time to continue with the fraud.