New CIS increases risk of identity fraud, warns KPMG

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KPMG construction industry consultant John Weir this week warned the audience at an AccountingWEB seminar that the new Construction Industry Scheme could increase the risk of identity fraud among unregistered subcontractors.

The new CIS does away with existing vouchers and certificates and instead requires contractors and "deemed contractors" (organisations that manage 1 million-plus building projects) to verify on a monthly basis that their subcontractors are registered under the scheme.

Subcontractors who have previously worked for reporting organisations will not have to be verified, but anyone taken on as a subcontractor after 6 April 2007 will need to be checked against HMRC's official register - either by phone or via HMRC's CIS website. Each contracting organisation will be required t...

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19th Feb 2007 09:50

CIS identity fraud
Under the current Scheme, gross payment credentials have been bought and sold for years. Indeed, recent reports in Construction News have highlighted several prosecutions.

This subject area was extended to new CIS in the Chartered Tax Advisor (September/October 2006) and in turn raises many security and CIS issues for contractors.

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19th Feb 2007 23:20

Who is worried?
HMRC will undoubtedly want to ensure that persons who are verified for gross payment are who they say they are - but then to get that status there are many hoops they have to jump through. It is probably unlikely that such a person would sell their identity - what is riskier is the provision to the contracting firm of the sub-contractor's UTR because that I would suggest is where the risk is here - and as these gross payment subbies are small building firms who may take on several jobs at the same time it may well be some time before fraudulent use is detected. But who is to blame here - the subbie - no, the employer - no they have simply done what HMRC told them - it is the less than scrupulous wages clerk who sold the identity. Introduce a rule requiring the subbie to produce their bank statements, utility bills, passports et al won't stop this fraud.

Where the sale is more likely is a subbie who is liable to a 'lower rate deduction' - 20% from April - but will the revenue worry about this one? I doubt it because the rate of deduction is set to approximate the subbie's liability - only if a subbie claims a repayment will the revenue be concerned here. And that is why the weaknesses have arisen, because the revenue lok at this from a risk point of view.

If a payment is made to A instead of B, because B misrepresented himself as A HMRC have still got their share and cynically that's all they worry about. If A isn't B they still have their 20% - sorted. B, the real B, is going to be in a mess down the line when the fraudulent as well as the real payments turn up on his record and he has a potential HR liability, but if you are going to sell your own identity ts because your probably going back to Ireland, Bulgaria, France or Poland etc so the potential for double recording won't exist. The danger is, again, the less than scrupulous wages clerk selling details of UTRs - and bear in mind that is all the contractor has to record the first time a payment is made.

As for 30% - unlikely to have sale value but I doubt that the revenue will track many of these subbies down anyway - but with basic rate and class 4 NIC in the bag do you think they are bovvered?

Yes there is an increased risk of fraud - but on whom by whom is not being answered by the great and the good.

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16th Feb 2007 17:37

CIS Fraud
Contractor - " Can I please see either your passport or drivers licence, and a utility bill" Fraudulent subbie disappears. If you don't do the checks then expect to be scammed. I think a Government Advert in this respect should be put on every hour on the hour over March, April and May.

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By SimonP
18th Feb 2007 17:12

New CIS = Old CIS + Stupidity
A client has received the aforementioned CIS333, listing subcontractors he does NOT need to verify.

One of these subbies goes by the name of "Ground Works Supervisor".

I kid you not.

Great system, huh!

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19th Feb 2007 08:14

CIS scheme
When I attended a HMRC course on this about 18 months ago I brought up the exact same thing and pointed out that it could be up to 21 months after the events before they started to pick up on the fraud.

I was assured that my concerns were unfounded and it would not happen.

Glad to see the big boys are now telling HMRC what the small people have been saying to them. Lets hope thay listen to you.

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21st Apr 2007 02:33

Illegal Workers? No Problem just pay 30%
The new system has opened the door for illegal workers to obtain work as subcontractors with 30% deduction. That will not bother a worker from a deprived country who would earn a fraction in their own country. There is no responsibility for contractors to obtain proof of id when verifying. Perhaps employer rules for illegal workers should be extended to contractors?

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