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HMRC internal manual

Compliance Operational Guidance

From
HM Revenue & Customs
Updated
, see all updates

Supporting Guidance: employer compliance: guidance by subject: construction industry scheme (CIS): identify fraud

Identity fraud is a major risk within the Construction Industry.

The very nature of the work undertaken within the industry means that workers move from job to job. The competitiveness of the industry also makes it important for contractors to keep their costs to a minimum.

The CIS up to 05-04-07 used registration cards to reduce the opportunity for identity fraud. A contractor must not make a payment to a subcontractor unless a valid registration card had been produced and inspected.

Identity fraud often occurred where a contractor failed to inspect registration cards or where a subcontractor produced a registration card that belonged to someone else.

In some instances, registration cards and vouchers were sold to allow a worker to use the identity of a legitimate subcontractor.

The CIS (Reform) from 06-04-07 uses the verification process to reduce identity fraud. A contractor must obtain identity details from a subcontractor and contact HMRC to ‘verify’ the subcontractor before making payment.

HMRC sent a letter (CIS365) to all known subcontractors prior to the start of CIS (Reform) to assist them in providing this information (COG910020). If the subcontractor is not registered for CIS the contractor must make deductions at the unmatched rate (30%) from payments to that subcontractor.

The sale or misuse of identity details can occur in much the same way as the sale or misuse of cards, vouchers and certificates did under the previous scheme.

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CI Caseworkers must

  • investigate the potential for identity fraud with care but
  • remember that there may be a valid explanation.

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Guidance on testing identity risks can be found in the EC Testbank.