The contractor must consider the status of the subcontractors and to be satisfied that none of those listed on the return are employees. Penalties of up to £3,000 can be imposed by HMRC, if contractors negligently or deliberately provide incorrect information. It’s important to note that employment status is not a matter of choice. The specific circumstances of the engagement determine how it is treated.
The issue of the status of workers within the construction industry is very important. Over the years HMRC have been making efforts to re-classify as many subcontractors as possible as employees. Different factors are considered by the courts over the years in deciding whether a worker is self-employed or employed. The tests which are applied include:
- the right of control over how, what, where and when the work is done. The more control that a contractor can exercise over the above, the more likely it is that the worker is an employee.
- whether any equipment is necessary to do the job, and if so, who provides it
- the basis of payment – whether an hourly/weekly rate is paid. Whether there is any overtime, sick or holiday pay, and whether invoices are raised for the work done
- whether the worker provides a personal service, or whether a substitute could be provided to do that work
- whether there is a mutuality of obligation. That is, an ongoing understanding that the contractor will offer work and the worker accept it
- whether the worker is part and parcel of the organisation, or whether they are conducting a task which is self-contained in its own right
- what the intention of the parties is. Whether there is any written statement that there is no intention of an employment relationship
- whether the workers have any financial risk.
So, there are a number of factors which must be considered as to whether somebody should be classified as employed or self-employed.
The employment status indicator tool is available on HMRC website, to help address this matter. However, the software appears to be heavily weighted towards re-classifying subcontractors as employees. Please talk to us, if you have any particular concerns in this area and if this is a major issue for your business. It is obvious that HMRC would like subcontractors to be classed as employees, as this means that more tax and national insurance is due. However, just because the HMRC tool suggests that somebody is an employee, it does not necessarily mean that they are correct.
If you need help with the status of the subcontractors, or for anything else in relation to CIS scheme, please contact us at Adiva Accountants in London and we will be happy to assist you.