They Thought Their Umbrella Company Had Them Covered.
Like many construction businesses, this traffic management company had been using an umbrella payroll provider to manage payments to its subcontractors.
How HardHats helped a construction contractor reduce a potential £110,000 HMRC liability to under £3,500, while protecting their gross payment status.
Client: Dry Lining & Plastering Contractor, South of England
Sector: Construction
The Challenge: HMRC CIS Compliance Enquiry
Potential Liability: Approximately £110,000
Final Liability: Under £3,500
Outcome: Gross payment status retained
The Challenge: When Your Accountant Leaves You High and Dry
When HMRC launched a Construction Industry Scheme (CIS) compliance enquiry into a dry lining and plastering contractor, the business naturally turned to its accountant.
After all, the accountant had been responsible for filing their CIS returns. Surely they’d be the right people to help?
Apparently not.
The accountant refused to accommodate HMRC’s inspection of the records at their offices. Then, during the first meeting with HMRC, they withdrew their services entirely.
Just like that. Gone. Mid-enquiry.
The contractor was left facing a potentially enormous tax bill, with nobody managing the investigation and very little idea of what would happen next.
Fortunately, they’d already been working with HardHats for several years on subcontractor employment status.
And although CIS compliance wasn’t part of our original brief, we weren’t about to leave them to deal with HMRC alone.
What We Did: We Stepped In When It Mattered
HardHats took responsibility for managing the enquiry under the client’s existing retainer.
No additional fees. No passing the buck. Just getting stuck in.
We already understood the business, its subcontractors and the working relationships involved. That gave us a valuable starting point when HMRC began examining how subcontractors had been verified, paid and reported.
And there were problems.
HMRC identified several issues with the contractor’s CIS arrangements:
- Some subcontractors had been paid gross when 20% should have been deducted.
- Others had been charged 20% when the correct deduction rate was 30%.
- Monthly CIS returns contained inaccuracies throughout the year.
- Adjustments made in the final month created discrepancies between the CIS returns and company accounts.
These weren’t minor administrative mistakes. They represented tax that should have been deducted but hadn’t been.
And under CIS rules, that can leave the contractor responsible for the shortfall.
The potential liability? Around £110,000.
What Was Really at Stake
The financial exposure was serious enough, but the business faced another potentially devastating consequence.
Losing its gross payment status.
That could have meant 20% CIS deductions being taken from payments received by the contractor, creating significant cash flow pressure.
To make matters worse, the company’s VAT refunds were being held up while the enquiry continued.
Money potentially going out. Money not coming in.
The pressure was building from both directions.
How We Turned It Around
There was no pretending the CIS returns were correct. They weren’t.
But there was an important distinction between a contractor deliberately ignoring its responsibilities and one relying on professional advice that turned out to be wrong.
And we had the evidence to demonstrate it.
Email correspondence showed that the accountant had been responsible for verifying subcontractors and submitting CIS returns, with the contractor relying on that professional guidance.
HardHats used this documentary evidence to support the client’s position, demonstrate its reliance on professional advice and pursue the available CIS relief.
We managed the correspondence, presented the evidence and worked through the enquiry with HMRC.
The process took approximately eight months.
But the outcome was worth fighting for.
The Result: £110,000 Down to Under £3,500.
After months of investigation, correspondence and evidence gathering, the enquiry reached its conclusion.
The potential £110,000 liability was reduced to a final amount of less than £3,500.
And just as importantly, the contractor retained its gross payment status.
That meant avoiding the significant cash flow disruption that losing gross status could have caused.
For a business that had been left without its accountant at the very beginning of the investigation, the outcome was a substantial turnaround.
The HardHats Difference: Fixing the Problem, Not Just Fighting It
Getting through an HMRC enquiry is one thing. Making sure the same mistakes don’t happen again is another.
Today, the contractor manages its subcontractors through the HardHats system, with stronger processes in place from the very beginning.
Subcontractors are verified with HMRC, right to work checks are completed, VAT numbers are validated and employment status is considered against the actual working relationship.
Payments are then processed using the appropriate CIS treatment.
The business has also appointed new accountants.
The result is a more structured approach to subcontractor management, with greater visibility and control over the information that matters.
Because the best way to deal with an HMRC enquiry is to have your house in order before the letter arrives.
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How HardHats helped a construction contractor reduce a potential £110,000 HMRC liability to under £3,500.
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