Understanding labour supply chain risks
Source: gov.uk (2025-01-16)

Information about the impact that labour supply chain risks can have, including the ways that risks can affect people.

HMRC expects all businesses to meet their own legal requirements. Your position in a chain and decisions on tax treatment, whilst engaging a workforce through labour supply chains, can directly affect your own tax compliance.

For example, failing to treat Construction Industry Scheme (CIS) payments correctly as a contractor could result in a tax liability relating to the underpayment.

Also, association with other businesses in your supply chains can result in potential financial and reputational implications for you if they are non-compliant.

For example, you could lose the right to deduct VAT Input Tax on transactions connected to fraud that took place down the supply chain.

Labour supply chain risks could result in:
- reputational damage — due to direct or indirect association with issues like modern slavery and tax fraud
- exploitation of people
- loss of your workforce — HMRC or other enforcement agencies can remove workforces from site, disrupt supply chains or take criminal action that could affect your business directly
- money being diverted — billions of pounds in unpaid tax is diverted from funding public services
- disadvantages for you in the market — tax non-compliance means some businesses gain unfair advantages in the market, making it harder for you to compete
- financial penalties — enforcement implications relating to your own compliance as well as your association with others in a chain
The victims of labour supply chain risks

People working at the bottom of labour supply chains can be adversely affected by supply chain risks. For example:
- workers are often unaware that they are part of a fraudulent supply chain — they may not fully understand how they are engaged in the supply chain and the implications for them
- workers may know something is not right but cannot report it — this could be due to coercion, language or cultural barriers, or fear of repercussion
The potential impact on people include:
- non-payment of workers’ contributions — Income Tax, National Insurance contributions, CIS deductions, workplace pension contributions
- workers may face personal tax bills
- non-payment of holiday and sick pay
- incorrect classification of a worker’s employment status — this can result in incorrect Income Tax and National Insurance contributions treatment, affecting future benefit claims
Exploitation includes:
- paying rates below the National Minimum Wage
- illegal working
- excessive working hours
- modern slavery
- engagement in forced criminality
Risks of physical harm to individuals, other workers and the public include:
- lack of training, health and safety and equipment
- inadequate employment processes — for example, ignoring security vetting
- being unable to raise concerns or access support — for example, due to language barriers
- poor living and working conditions — for example, poor sanitation and no access to healthcare
- coerced harmful activity
- unemployment — for example, where a business disappears or ceases trading through enforcement agency action
Individuals who take up directorship of limited companies within a mini umbrella structure can also be victims of exploitation. These ‘stooge or nominee’ directors could be manipulated by organised criminal groups and may have little understanding of the potential implications they can face through their involvement in these models.