Should tradespeople you contract provide their own tools and materials for HMRC to consider them subcontractors?

Whether tradespeople you contract should provide their own tools and materials for HMRC to rightly classify them is a very interesting question, and it probably falls into the category of another one of the urban myths that surrounds Employment Status. Now, for someone to be genuinely self-employed, they have to be in business of their own account. I’ve said it many times that the cornerstone of the working relationship is the contract between the worker and the client. If there is no contract in place, the Revenue will look at the details of the working arrangements and one of the things they’ll look at is ‘does the contractor provide all the equipment for the job or does the subcontractor provide some of the plant and equipment?’

Now there’s historical case law where the Revenue won the argument that even if a tradesperson provides the majority of their hand tools and materials , they can still be classed as an employee because they are the tools of the trade and they would be expected as a skilled individual to provide those tools, even if they were engaged under an employment contract, rather than on a self-employed contract. So I guess it’s a bit like the argument around time. People have fixed ideas about how long someone can be engaged for before they become an employee. That’s completely the wrong way of looking at it; the terms of an engagement are established at the outset of the engagement and time is irrelevant to those arrangements.

Are tools and materials a determining factor?

So the answer to the question is that it’s the contract that counts. The provision of tools and materials are just one of the things that the Revenue would look at if there was no contract in place, but it is not a determining factor. That’s because there are a whole range of things that the Revenue will consider when looking at the engagement;  they  then decide does this look like an employment relationship or does the individual look like he is genuinely in business of his own account – does he  look like a self-employed individual? And the provision of hand tools? That’s only a small element of that bigger picture.

There may be some contractors and sub-contractors that are not used to putting together contracts. Is it enough for something to be scrawled on the back of a napkin or are there requisites, for a contract, to be deemed a source admissible?

The contract element is a very detailed aspect of employment law. The contract can be a verbal contract, and that verbal contract is just as binding as a written contract, but of course, there’s no way of proving what the contractual terms are with a verbal contract.

There are many pitfalls in trying to write your own contract and in fact at EEBS, we don’t write our own contracts. We use whom we believe to be the country’s leading experts in construction tax law to write our contracts, because employment law – and especially within the realms of construction – is a fast-changing area of law. A contract that you’re needing to write this week could be out of date or superseded by case law in six month’s time. That’s where the risk lies for contractors in trying to go it alone, or even getting their accountants or solicitors to write contracts for them. The issue is unless they stay on top of the implications to the contract in relation to case law or indeed primary legislation, those contracts can easily be out of date or overruled by a Revenue assessment. So that’s the risk around drafting your own contracts.


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Is it best practice to write a contract for each separate job to determine employment status?

No, that’s absolutely not necessary. You can have an overarching contract that governs the relationship between the contractor and the sub-contractor or between the contractor, the intermediary and the subcontractor, which is what we do. And it’s perfectly legitimate to have an overarching contract and the details are agreed on a specific assignment by assignment process. It can be an addendum or a separate agreement, but the contract can remain in place which goes across engagement.

How about transport, like using a contractor’s van? Is that an indication of employment status? 

Again it’s another one of those popular urban myths. The way I look at it, the easiest way to describe it is that if it’s a benefit to the client business, that tradesmen could turn up in one of their vans. So if it’s new, it’s clean, it’s sign written – then that’s a benefit to the client. Then there is no implication in terms of the engagement by the use of that vehicle. The analogy I like to draw is that if you ran a bus company and there was a flu epidemic that caused half your drivers to go off sick, you would go to an agency and engage self-employed drivers to fill the gap. You wouldn’t necessarily expect them to turn up with their own buses. So it’s a case again of ‘if it’s a benefit to the company or the tradesman to use their vehicles, then there’s absolutely no implication of its improper use.’ The Revenue may draw implications if that vehicle was given to the tradesman and it became his to take home, but the other side of that argument is if the client doesn’t have enough space, or the contractor asks the sub-contractor to take one of their vans home to avoid parking issues, then again, that’s a benefit to the client. It’s not an implication of employment status.

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Nick Pilgrim

M.D. | CIS Payroll Expert
01245 493832

Nick loves nothing more than chewing the fat over CIS payroll queries – actually that’s not strictly true; he likes playing golf and driving round Europe, but pick up the phone to him anyway!

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