How to spot construction supplier tax avoidance with Risk Radar

Did you know that in recent years HMRC¹ has publicly named over 500 companies for participating in tax avoidance schemes? Many of these entities operate within the construction sector, supplying labour and services to major projects across the UK. 

For construction risk managers, this isn’t just a headline, it’s a warning sign of potential compliance and reputational risk within the supply chain. Being associated with suppliers on HMRC’s tax avoidance list creates serious reputational, financial, and compliance risks that can derail projects and damage client relationships. 

In this blog, we’ll explore: 

• What tax avoidance is 
• Tax avoidance vs tax evasion 
• How HMRC enforces compliance 
• How to spot suppliers involved in tax avoidance schemes within your supply chain, and protect your organisation’s reputation

What is Tax Avoidance? 

Tax avoidance involves using arrangements that seek to exploit gaps or unintended outcomes in tax legislation to gain a financial advantage. It usually involves artificial transactions that serve no real purpose other than to falsely reduce tax liability. 

In the construction industry, these schemes often appear sophisticated. Common examples include: 

• Umbrella company schemes: These may split payments into a small “salary” and a larger “loan” or “advance,” claiming the latter is not taxable. 
• Employee Benefit Trust (EBT) arrangements: Funds are diverted through trusts to avoid National Insurance and Income Tax. 
• Annuity-based payment structures: Complex payment methods designed to obscure true income. 
• Split contract arrangements: Breaking down contracts artificially to avoid tax thresholds. 

While promoters of these schemes often claim they are ‘HMRC approved’ or compliant, the reality is starkly different. HMRC does not approve tax avoidance schemes, despite many promoters claiming otherwise. These arrangements are designed specifically to circumvent tax obligations, and they pose a significant threat to the supply chain.

Tax Avoidance vs Tax Evasion 

It is vital to distinguish between tax avoidance and tax evasion, though both create severe headaches for main contractors.

Tax Avoidance

This involves using artificial or contrived arrangements to gain a tax advantage. 

• Method: Generally involves schemes promoted as ‘legal loopholes.’ 
• Marketing: Often sold with false claims of legal approval. 
• Consequence: Results in civil penalties, back taxes, and significant interest charges.

Tax Evasion 

This is illegal. It involves deliberately concealing income or providing false information to HMRC. 

• Method: Deliberate non-payment or hiding of assets. 
• Consequence: A criminal offence that can lead to prosecution and imprisonment. 

For a main contractor, the practical risk remains the same; both scenarios indicate a non-compliant supplier that introduces unacceptable risk into your project. Ignorance is not a defence – contractors have a duty of care to ensure their supply chain is robust and compliant.

HMRC’s Tax Avoidance List: What You Need to Know 

To combat these issues, HMRC employs a ‘naming and shaming’ approach. They publish lists of tax avoidance schemes², promoters, enablers and associated entities. 

These lists typically include: 

• Scheme Reference Numbers (SRNs) 
• Company names and registered addresses 
• Details of the scheme promoters 
• Descriptions of how the scheme claims to work 
• The legislation that has been breached 

HMRC uses several powerful mechanisms to enforce this: 

• DOTAS (Disclosure of Tax Avoidance Schemes): Promoters must notify HMRC of their schemes. 
• POTAS (Promoters of Tax Avoidance Schemes): Targeted measures for repeat offenders, including stop notices. 
• Finance Act 2022 provisions: Newer powers that allow HMRC to name non-compliant entities more quickly.

If a supplier appears on this list, it is a clear signal that HMRC views their tax arrangements as non-compliant. This is particularly relevant for umbrella companies in construction, which are frequently targeted by these enforcement actions.

Implications for Suppliers on the HMRC List 

When a supplier is named on the tax avoidance list, the consequences can be significant. 

• Financial penalties: They face back taxes, interest, and penalties that can reach 30% of the disputed amount. 
• Reputational damage: Being publicly named creates a lasting stigma that is hard to shake. 
• Operational disruption: Investigations and audits consume time and resources, leading to potential business interruption. 
• Insolvency risk: The combined impact of tax liabilities, penalties and legal costs can push suppliers toward administration or liquidation. 

Crucially, the fees suppliers pay to scheme promoters are rarely recoverable. They lose money twice: once to the promoter, and again to HMRC. 

Consequences for Main Contractors 

Why should you care if a subcontractor is avoiding tax? Because the supply chain risk can extend beyond the individual supplier. 

• Reputational risk: Your brand is judged by the company you keep. Association with tax-avoiding suppliers damages client confidence. 
• Project delays: If a supplier goes insolvent due to tax debts, your critical work streams halt. 
• Regulatory scrutiny: HMRC may extend their investigation to review your own supply chain due diligence processes. 
• Client relationship damage: Public sector and regulated clients have zero tolerance for tax non-compliance – you will likely be debarred from bidding on contracts. 
• ESG failures: Working with non-compliant entities breaches social value commitments and governance standards. 
• Tender disqualification: You may find yourself shut out of future public sector bidding opportunities.

Prevent risk: proactive supply chain monitoring with Risk Radar 

Manual checks alone may not provide sufficient visibility into emerging supplier risks. To truly protect your business, you need automated intelligence. This is where Risk Radar’s Tax Avoidance Schemes & Litigation Decisions dataset becomes essential. 

Risk Radar aggregates data from HMRC public lists, court decisions, and judicial reviews to provide a consolidated view of tax compliance risks. It helps contractors by offering: 

• Exception-based monitoring: You get automatic alerts the moment a supplier is flagged by HMRC. 
• Pre-qualification screening: You can vet potential suppliers against tax avoidance lists before awarding a contract. 
• Continuous surveillance: Weekly score recalculations ensure you catch new listings immediately. 
• Contextualised reporting: We help you understand the severity and implications of the alert. 
• Cross-dataset intelligence: We combine tax data with insolvency and adverse media checks for a complete risk picture. 

By identifying these issues proactively, you can mitigate construction supply chain tax risks before they escalate into project disruptions. 

Comprehensive tax avoidance dataset 

Our Tax Avoidance datasets help you identify suppliers who may pose a risk to your reputation and projects, with data sourced from: 

• HMRC public lists – list of companies flagged for Tax Avoidance 
• Litigation outcomes: tracks court and judicial decisions on challenged schemes. 
• Real-time alerts: Immediate notifications based on new HMRC publications. 

Have you checked out our other Risk Radar datasets available? 

• Tax Defaulters – are you linked to a supplier deliberately avoiding paying tax? 
• Competition & Markets Authority – do you know if one of your supply chain members is under investigation with the CMA? 
• National Minimum Wage – are your subcontractors underpaying their employees? 
• Construction Court – could hidden litigation history derail your project? 
• Adverse Media – will you become tomorrow’s headline?

Key takeaways 

• Tax avoidance schemes create serious compliance, reputational, and financial risks for construction supply chains. 
• HMRC actively publishes lists of non-compliant schemes and suppliers, organisations are expected to conduct appropriate due diligence. 
• Main contractors face significant consequences when working with listed suppliers, including project delays and regulatory scrutiny. 
• Proactive monitoring is essential; manual checks are often outdated by the time work begins. 
• Risk Radar provides real-time intelligence to identify tax compliance risks early, enabling informed decision-making. 

Protect your future projects from tax compliance risks 

The risks associated with tax-avoiding suppliers are too significant to ignore. It threatens your project delivery, your compliance standing, and your client relationships. 

Don’t wait for HMRC to publish your supplier’s name. Detect tax compliance risks early with Risk Radar. 

See how tax avoidance screening integrates seamlessly with your existing supply chain risk management.