This is an important warning for all CIS subcontractors that has been highlighted by TaxAid. There are criminals posing as accountancy or tax experts that target CIS subcontractors. Ultimately, even if you are a victim of these fraudsters, you are liable for the repayments of any fake tax rebate claim made in your name. Worst case scenario is that you end up owing HRMC thousands of pounds.
But I am entitled to a CIS tax rebate, where’s the scam?
The fact that most CIS subcontractors earning around £30,000 are entitled to an income tax refund is what makes you a good target. You’re expecting a rebate because the final calculations on your tax return show that the 20% you’ve paid is more than the income tax and Class 4 NICs you owe HMRC. Once your income and work expenses are all accounted for, HMRC usually owes you some tax back. And who doesn’t want to hear that?
How do these tax and accountancy advisers fake claims?
There are several ways that these so-called tax and accountancy advisers can fake claims. If they are authorised to complete your paperwork on your behalf, they can include things on your tax return like:
- Imaginary expenses: items you have not purchased, journeys you have not made etc.
- Non-tax deductible expenses such as: holiday or personal travel and accommodation, domestic mortgage interest and travel expenses for your daily commute from your home to the workshop or office.
The reason that they include as many expenses as possible is to bring down your taxable profit figure. In turn, this increases your tax refund figure and their cut of your cheque.
Now these fake professionals may also lie to you about how much your tax rebate claim is worth in order to keep more of it. Or tell you that you haven’t got a legitimate claim, but submit one anyway without your knowledge.
Tax and accountancy professionals can get authorisation from their clients in order to work on their behalf. This is a great help when you are working with a real expert. It means that they can do things like file paperwork and speak to HMRC on your behalf. It is common for tax rebates to be received by real tax companies, so that they can deduct their fee and pass on the rest of the rebate to their clients. But these CIS scammers are using the system in order to either steal from you or the government.
Why are they bothering with CIS subcontractors?
Scammers target CIS subcontractors for two reasons. Firstly, they are usually expecting to go through the process of claiming a tax rebate, so there is little persuasion or explanation needed. Secondly, there’s good money in it. A CIS subcontractor can claim up to £20,000 if it’s their first claim and they are including backdated tax years.
How serious is this?
It is very serious. Obviously, HMRC are fully entitled to reclaim any tax rebate claims that are found to be fraudulent. And that is what they will do. Not straightaway either, but after due processing and investigation, about a year later. This gives the criminals plenty of time to leave your area and re-open somewhere else.
But even if you could track them down, the responsibility for your tax position lies with you, whether you have sought professional help or not. So, you owe HMRC for any repayment made under your name, regardless of the situation with your tax consultant. In some awful cases, this can lead to a declaration of bankruptcy.
Can I do anything about these companies, if it happens to me?
As previously mentioned, these are professional criminals who already have an exit strategy and next set of targets in place. By the time HMRC come knocking for you to pay them back, the company has conveniently disappeared. You may have a legal claim against them, but it’s very unlikely that they have legitimate insurance to cover your loss and legal fees. Reporting it is very important, as it helps the police and HMRC build up a national picture and track where these criminals are working.
How can I protect myself against fake tax and accountancy professionals?
There are several things to look out for, that a real tax and accountancy professional will do. For example:
- Carry out basic administrative procedures. Such as, sending an initial document confirming the terms of your professional relationship when you first hire them. This will include transparent pay structure. A fake professional will avoid any paper/email trail, so will only use the phone and you will notice that you have nothing ‘official’ to print out as a record.
- Your real tax expert will send you your ‘tax computation’ – ie how they expect your tax rebate to be. And then you will receive a copy of your tax return. You should be suspicious if the numbers are vague and you are told you don’t need a copy of your tax return, or are otherwise denied it. It’s also important to actually read the tax return you are sent, look out for things like work expenses you don’t recognise.
- An actual professional will tell you what kind of evidence you need to have to support any claim and expect to see it. This might be things like receipts and travel logs, as well as payslips to confirm your income amount. A rogue accountant won’t want to confirm any of your figures or ask for any supporting documentation. That’s because they are making up the numbers to suit themselves.
Choosing the right tax adviser
There are a couple of things you can look for when you’re deciding who to work with on your CIS subcontractor tax relief claim. If a company are advertising themselves as ‘always gets the biggest refunds’, beware. It is not about getting the biggest tax refund cheque for your client. It is about ensuring that their tax liability is fully paid and that they are refunded for all overpayments of tax.
Every taxpayer is in a different financial situation, even if they’re all in the Construction Industry Scheme. So it’s actually impossible to get ‘the highest tax refunds’ because each case is different. This type of advertising is a big alarm bell.
If you are recommended a company by someone you trust, it’s their competency and customer service levels that you should be hearing about. That’s why we refer our CIS clients to In-Sync Tax because we know they’re in safe hands.
Another thing you can do to check the validity of the firm you are looking at, is look at the qualifications of its staff. If it’s a real firm, it will have these somewhere on its website. All qualified accountants and tax professionals must be registered with their governing body and continue to be regulated by them for the rest of their careers. You can check individuals with the relevant bodies listed below:
- Association of Chartered Certified Accountants
- Institute of Chartered Accountants in England & Wales
- Institute of Chartered Accountants of Scotland
- Chartered Institute of Taxation
Please be careful when choosing your tax or accountancy professional. Trusting a company with your tax position is a huge step, which has a multitude of benefits when you work with someone of integrity. But the consequences of scams of this magnitude can be devastating and long-lasting.
Tony Shanks