A Monthly Publication

By Liz Wilcock ACCA

The Government remains committed to addressing “false” self-employment in the Construction Industry.

Intro

Recently, just as we had all got used to the Construction Industry Scheme [CIS] methods and procedures, the Government are planning the release of new legislation concerning the employment status of “sub-contract” workers.

The Facts (the boring bit!....please stick with me!)

On 20 July 2009, a consultation paper was issued entitled “False self-employment in construction: taxation of workers”. This examines the problem of categorisation of construction workers and whether they are employed (an employee) or self-employed (a sub contractor…or “subbie”).  This subject has always been somewhat contentious!

HM Revenue & Customs (HMRC) has historically always taken a hard line against what it sees as “false” self-employment i.e. workers treated as self-employed when in HMRC’s opinion they should be treated as employees.  This is simply because employed workers generate a higher tax take than the self-employed.

At present, there is no simple test to define whether someone is employed or self-employed.  The matter is determined through judicial precedent and the bank of case law which has addressed the matter provides a considerable list of factors that must be considered in order to ascertain the nature of an engagement.

The new legislation now being tabled, proposes a test which, in certain circumstances, will define hitherto self-employed workers as “deemed” employees.  This would mean PAYE & NIC would have to be deducted from their pay, and, employers NIC would have to be paid as well.

The proposed new test for “deemed” employment, which is considerably simpler than the current Employment Status Indicator, asks 3 questions:

· Does the worker provide their own plant & equipment necessary to perform the job?

· Does the worker provide all materials necessary to complete the job?

Does the worker employ the services of others to perform the job?

A worker will have to meet one or more of these 3 criteria in order to be categorised as self employed.

Just to put things in perspective this test is designed to try and take up to 300,000 sole trader sub-contractors out of CIS and into PAYE . . . . so be warned!

I would therefore strongly recommend that all businesses and sub-contractors in the construction industry immediately consider the impact of these proposals and contemplate what action should be taken as a result.  The potential cost and cash flow impact must be considered without delay.

Employee?

Ok, so you’ve carried out the test and think you’re an employee.  But beware . . . . .  you are not an employee for all purposes, just for the sake of tax and NI purposes. Come on, surely you didn’t really think the Revenue would make it that easy for us did you?

Puzzled?

In troubled economic times such as these, it seems crazy to introduce new legislation to an already heavily regulated industry. However, as soon as the Government defines the industry as being in a “stronger position” it is likely that these new provisions will be effected.

Getting it wrong

Getting the status of a worker wrong can have serious consequences for both the contractor and the “subbie”. 

Confused? … We can help you….

So, are you are a contractor struggling to keep abreast of the ever changing government legislation?  Do you need some help to manage your monthly returns and paperwork? Are you in a conundrum as to the status of your workers?

Or perhaps you are a sub contractor and are confused with the new regulation and require some advice and assistance with your personal Self Assessment Tax Return?

If this is you, please call either myself, Liz Wilcock ACCA, or my boss, Kate Gigg FCA, on 01485 534800 for some friendly advice and solutions to your needs. You really can leave the headache to us!!

Oh and by the way,…. An extra little tip

The Construction Industry Scheme does not issue CIS cards anymore. There has been  some confusion recently as the old scheme required sub-contractor to present their card to a new contractor for whom they would be working. Nowadays, all that is necessary is the “subbie” needs to provide their contractor with their name, address, NI number and UTR and the contractor can then verify with HMRC and confirm the CIS tax deductions.

And finally . . . . . . Gross Payment Status

The number of sub-contractors failing the Tax Treatment Qualification Test and losing their Gross Payment Status (GPS) as a result, continues to be significant.

The loss of GPS is declared to all existing and prospective clients of a business by the Revenue and this can cause severe damage to the reputation of the business (out of all proportion to the compliance failings that gave rise to the loss of the GPS in the first place).

So if you suddenly find yourself in this position please call us straightaway.  We have recently won a number of appeals on behalf of clients and won back their Gross Payment Status, with their cash flow being unaffected.  And today . . . . . that says a lot!       

Caution:  This newsletter article is produced for guidance only and should not be used as a substitute for professional  advice.  Accordingly, no liability for any loss or damage can be accepted by Kathryn Gigg Chartered Accountants or other contributors, as a result of any person, company or other organisation acting, or refraining from acting, upon comment made in this article.

© Kathryn Gigg 2009