Nick Pilgrim, Managing Director at EEBS Limited, a leading payroll specialist for the Construction Industry looks at a few popular urban myths concerning the Employment Status of individuals within the industry.
Whilst talking to delegates at a number of National Trade Shows recently it became apparent that a massive gap in understanding still exists within the industry regarding the establishment of genuine self-employment. Many popular urban myths surround the issue, and this confuses peoples understanding even further.
The four most common statements that we heard during the seminars were:
- All my lads are registered with the CIS, so they are automatically self-employed.
- I get a weekly invoice from my lads (although we actually knock it up in the office for them) – so I am fully protected.
- All my lads have limited companies.
- I only use self-employed lads for 3 months at a time (or 13 weeks/a few weeks/a few months/six months etc – you get the drift) so that’s too short a time for them to be employed.
ALL of these statements grow from a seed of plausibility, but only one has a chance of winning the argument with HMRC!!
Let’s take a brief look at how the Revenue decide if a tradesmen is employed, or self-employed. IF:
- You use self-employed tradesmen without a written contract,
- You supply the majority of the materials, plant and equipment,
- You pay them an hourly/daily/weekly rate
- 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 – in spite of the assertions like those above you may make!
So, with reference to urban myths above:
- False – the terms of the contract (written or implied) determine employment status – not how the individual is taxed!
- False – An extremely thin and dubious attempt to establish the tradesman as genuinely in business of his own accord!
- True! As long as the arrangements are genuine, and correctly applied.
- False – Time is immaterial to employment status. An individual could be employed from the minute he starts – if you fail the Revenue tests!
So is there an alternative?
Yes! In spite of HMRC’s ongoing attempts to limit the employment arrangements options for contractors, it is still entirely possible to guarantee your sub-contractors self-employed status via specialist intermediary suppliers.
But is it safe?
As in any industry, not all solution providers are equal. Yes it is safe to outsource the supply of your sub-contractors, 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!).