Do you engage Self-Employed Tradesmen?
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Nick Pilgrim, Managing Director at EEBS Limited, a leading payroll specialist for the Construction Industry answers questions on how contractors are at risk and how to find a suitable solution.
Do you engage Self-Employed Tradesmen?
Some things will never change!
- Customers want to pay less but expect more,
- England football team can’t win a trophy,and
- the Inland Revenue will keep on finding new ways to challenge the self-employed status of tradesmen in the construction Industry!
Recent changes to both government legislation and HMRC policy now make this issue more difficult for contractors than ever before. Both the Treasury and HMRC are hungry for a higher tax take. Contractors continuing to engage self-employed tradesmen, directly or indirectly, face aggressive reviews of their tax arrangements and need to be aware of the risks and potential liabilities associated with these arrangements.
Frequently asked Questions
Q. How does the Revenue decide if my tradesmen should be employees?
A. HMRC looks at how you work with sub-contractors, and if:
- You use self-employed tradesmen without a written contract,
- You supply the majority of the materials, plant and equipment,
- You pay them anhourly/daily/weeklyrate
- The sub-contractor cannot demonstrate that he can make a loss as well as a profit, or
- the sub-contractor cannot demonstrate that he has an active portfolio of other clients,
then HMRC are extremely likely to find that these tradesmen are your employees, that they are not genuinely self-employed, that they should have paid more tax, and that YOU should be liable for their back tax (and penalties)!
Q. How does HMRC pick who to investigate?
A. Each year the Revenue target specific industries for investigation; construction is always on this list. Now using the new monthly online CIS returns they are able to “data mine” submissions in real-time looking for “hallmarks of employment”. These include:
- Sub-contractors with only one “employer”
- Sub-contractors who are paid regular amounts
- Sub-contractors receiving few payments for materials
- Sub-contractors who pay no other Sub-contractors
Any contractor engaging these types of sub-contractor is flagged as a potential target.
Q. So what will it cost me if I do what they want and convert my tradesmen to Employees?
A. It is generally reckoned that the additional “payroll burden” for employing as opposed to contracting is an increase in payroll costs of between 28 -40%. This is made up of, amongst other things:
- Employers National insurance costs
- Holiday pay
- Additional admin costs for dealing with PAYE and employment rights legislation
- New pension contributions
- Paternity and maternity leave costs
This estimate does NOT include any additional cost incurred through the reduced ability to vary your workforce to match your workload.
Q. Is there an alternative?
A. Yes! In spite of HMRC’s ongoing attempts to limit the employment arrangements for contractors, it is still entirely possible to outsource your sub-contractors to specialist intermediary suppliers.
Q. Is it safe to use an intermediary?
A. In our industry, as in any other industry, not all solution providers are equal. Yes it is safe provided you take advice from a reputable, audited and compliant supplier. (Ideally one who has never had their model challenged by HMRC, who are audited by the Aspire Partnership (the UK’s leading Construction Tax Specialists) and whose compliance is backed by a comprehensive guarantee).
Contact EEBS today for your FREE CIS Compliance Health Check, no obligation, no sign up fee, no ongoing commitment, no exit fee.
Tel: 01245 493832 or Email: This email address is being protected from spambots. You need JavaScript enabled to view it. or www.eebs.co.uk/healthcheck