CISR85030 - CIS fraud measures: Section 62A liabilities: ‘knew or should have known’ in this context

As the supply chain is traced and evidence is collected, evidence should be gathered as to whether the person ‘knew or should have known’ that there would be a deliberate CIS or PAYE compliance failure by another person in the supply chain, such as:

  • evidence of the person’s general knowledge of deliberate compliance failures that could occur in the supply chain at the time the transactions took place (see CISR85070),
  • features of the nature of the payments and/or contracts that would have led the person to question whether they were connected to deliberate compliance failures (see below), and
  • due diligence and risk assessment carried out by the person to identify and address the risks identified (see CISR85080)

Indicators that would suggest that the business should have known that the transaction was connected with a deliberate failure to comply include:

  • Unsolicited approaches from organisations with little or no history in construction
  • Directors with no construction experience
  • Payroll companies or agencies with no physical or online presence
  • Repeat deals at the same or lower prices and consistent profit
  • Unsecured loans or credit with unrealistic rates of interest
  • Instructions to make payments to third parties or off-shore
  • Use of alternative banking platforms
  • Invoice features, such as an identical layout/template for multiple different suppliers, incorrect tax references, invalid invoices, bank details for different entities
  • Suspiciously low prices, below realistic labour costs, that appear too good to be true
  • No formal contracts in place despite the deals involving high values
  • No insurance
  • Back-to-back deals
  • Excessive layers of subcontracting that would result in labour costs only being feasible if tax/CIS deductions are not paid
  • Frequent changes of subcontractor entities who supply the same labour with previous entities that default or go missing

This list is not exhaustive and will depend on the circumstances surrounding the payments. A combination of factors could lead to the conclusion that transactions were ‘too good to be true’ and there had been or would be a deliberate failure to comply within the supply chain.