HM Revenue and Customs have not allowed current trading conditions to deter them from pursuing the construction industry. The second wave of challenge letters have been sent out to those who are currently paid gross but have fallen foul of the requirements to retain their gross payment status.
Whilst that can be devastating to individual businesses, of concern to the industry as a whole is the consultation document recently published by HMRC on ‘false self-employment.’
Currently, the ‘engager’ of any worker within the construction industry is required each month to review whether that worker is self-employed. This decision is made using the various cases which have been decided by the courts and tribunals.
The engager then either pays them via the PAYE scheme as an employee or validates them with the HMRC database and pays them on invoice. Where the engager incorrectly pays someone as self-employed, HMRC will gross up the payments made and assess the payer for NIC, any additional tax due, interest for the earlier years and penalties.
The potential cost can close a business, whilst the uncertainty of the outcome to any status challenge makes accurate costings almost impossible to achieve.
The consultative document is proposing to ‘simplify’ the issue by identifying three indicators of self-employment. The three criteria are:
- The provision of plant and equipment in addition to the tools of the trade which are normal and traditional for individuals to provide.
- The provision of all materials to complete the job, or
- The provision of other workers to carry out operations and to be responsible for paying them.
Where a worker does not meet any of the three they will be deemed employees and payments to them will be subject to PAYE. The Government believes these criteria bear the hallmarks of a person carrying on a business in his own account and of course they do, but the case law used currently provides a far broader range of self-employed indicators which more closely match the industry’s technical variety.
If the tree criteria are allowed to form the legal definition of self-employment, it may help clarify the status problems but it will cost you money with 12.8% employer NIC on all payments to deemed workers.
It will almost certainly reduce the flexibility of the workforce and increase payroll administration.
Greengates Builders Merchants, Lancashire would like to encourage you to be careful when dealing with this matter.