Firms are also being caught out for聽around paying net-paid subcontractors for plant and materials.
That鈥檚 according to Hudson Contract, the largest payer of self-employed tradespeople in the industry. The company, which closely monitors trends impacting the supply chain and the issues facing clients and potential clients, is reporting an increase in compliance checks on construction SMEs.
In the first half of 2025-26, HMRC secured more than 拢15 billion through compliance activities across all sectors with construction being one of the key targets. The government has invested in new technology and 5,500 extra compliance staff to extract further funds from businesses for the Exchequer.
In one recent example, a well-run and successful company found itself exposed to massive liabilities resulting from poorly-drafted contracts used to engage self-employed CIS subcontractors and consultants. The firm in question believed the subcontractors it had used were genuinely self-employed and its contracts, drafted by a paid third party, would confirm this. However, HMRC had other ideas and issued a determination reclassifying the subcontractors as employees for tax and National Insurance purposes.
In a number of other cases, Hudson has seen contractors fall foul of the technical rules that catch out lots of firms every year.
Contractors already find it confusing to determine who should be verified and reported under CIS. The rules around what is allowable as a gross payment for plant and materials when charged by net-paid subcontractors are even harder to navigate. It is the contractor which will be held to account by HMRC for any underpayment, even though it is the subcontractor who receives the payment and often provides the figures. And that鈥檚 alongside the fine line between when subcontractors become labour providers and as such should be treated differently for VAT.
Dan Davies, compliance director at Hudson Contract, said:聽鈥淲hen so many contractors contact us for help having got the technicalities wrong, it makes you think something has to be wrong with either the rules or the guidance. I used to find that if you corrected the mistakes and reassured HMRC that you would not repeat them, it would not issue penalties or revoke gross payment status, but that stance has changed.
鈥淚n the recent status case I helped with, it was frustrating because had this company been a Hudson client, the outcome would have been entirely different and the client would not be staring down the barrel of a six-figure fine. Ultimately the subbies acted and were treated like subcontractors rather than employees, but the determining factors were not expressed in the written contracts. In fact, the opposite was true.聽
鈥淭his case serves as a warning that poorly-drafted contracts are as bad as no contracts at all. If you have questions about your supply chain arrangements or your contracts, or聽find yourself on the receiving end of an HMRC compliance check, get in touch as a matter of urgency.鈥�
Call Hudson on 0800 054 1127 or send an enquiry .
This content was supplied by Hudson Contract.