With recent changes to government and HMRC legislations, Inland Revenue came up with new policies to challenge the self-employed status of tradesman in construction industry. Stakes are high and both the Treasury and HMRC are counting on increase in tax take. It is estimated that through incorrect status (choosing self employment over Payroll) Inland Revenue loses 20-40 percent in taxes each year. Therefore more stringent checks are in place now and contractors will face reviews of their tax returns and will be informed of penalties and risks involved. Putting people on Payroll means additional admin costs, Employers NI, Holiday pay, Paternity and maternity leave costs not to mention company perks etc. It is therefore cheaper and more straightforward to treat workforce as self-employed subcontractors. But is this right and agrees with the existing rules and regulations? And what are the criteria that should be considered in deciding about the status? Inland Revenue looks at one or the whole array of tell-tale clues that may sway them into treating work force as self-employed/subcontractors or those that need to be on Payroll. This would be for example contractor using only one subcontractor and not portfolio of clients, lack of written contract with subcontractor, the way subcontractors are paid (hourly/daily/weekly/rates), whether contractor pays for the majority of equipment and materials, if he makes loss as well as the profit from his business activities etc. Sub-contractor status is likely to be investigated if it becomes apparent that he receives regular income from only one employer, does not receive payments for materials, and does not pay other subcontractors. Each year Inland Revenue targets specific industries and construction is always on this list. If investigated and found out that employees are not genuinely self-employed and should have been paying more tax, businesses are penalised and due tax is recovered from them. It is therefore in contractor’s interest to ensure that people he works with have the correct status. If in doubt contractor can always fall back on the advice of a professional and as an alternative he can outsource his sub-contractors to specialist intermediary suppliers, as Inland Revenue will continue finding new ways to challenge self-employed status of tradesman.
I'm on a (Pay)roll