Employee or Sub-contractor?
Are You Compliant?

 

It is becoming more and more common that H.M. Revenue & Customs are carrying out Employer Compliance Reviews to ensure that businesses are correctly dealing with Employment Taxes, and where sub-contractors are used, to ensure that the new regime is being correctly operated. This will include a comprehensive review as to the status of any subcontract labour that is used.

Although the new sub contractor regime has highlighted the fact that more consideration has to be made as to the employment status of a sub – contractor, it has always been the responsibility of the employer to ensure that the status of persons whom carry out work for the company is correct. i.e. employed or self employed.

HMRC’s problem with sub-contractors

The main issue with sub – contract labour is the fact that the employer is not responsible for any National Insurance Contributions, whereas both Employee’s National Insurance of 11% and Employer’s National Insurance of 12.8% is deducted from employees of the business. The Inland Revenue therefore feel that they are ‘out of pocket’, and as such are tightening up on sub-contractors who should be treated as employees.

Status identification

There is not just one consideration that needs to be made when determining the status of a worker. Generally speaking, the Inland Revenue will look at the work which is being carried out by the worker, the length of time that the worker works for the business, the control that the business has over the worker, and the financial risk of the worker, but it is the overall view that needs to be considered not just these points.

Following an Employer Compliance Review, H.M. Revenue & Customs may determine that the status of certain workers is incorrect, and it is the employer who is liable for any additional tax. Penalties may also be levied!

The Inland Revenue do offer a Status Indicator Tool, which asked a number of questions and advises as to whether the worker should be treated as employed or self – employed. Although this is not a guarantee that the Inland Revenue will accept this decision it does give a good guide.

If you would like to discuss this or to take advantage of our PAYE Compliance Healthcheck, please Call Matthew Morris on 01384 376964