HMRC Reclassification of Workers as Employees
Significant bills for unpaid NI, penalties for non-compliance plus future payroll costs increased by at least 40%.
Loss of flexibility – no longer able to match workforce to workload.
Significant increases to your administrative and regulatory burdens and costs, not least Holiday pay.
The risks in detail
There has, for many years been conflict between the UK tax authorities and the Construction Industry over the Employment Status of tradespeople.
HMRC treats all self-employment with suspicion, and frequently looks reclassify genuinely self-employed individuals as employees, as a means of claim back tax and National Insurance from hapless contractors. This activity is exaggerated when they look at the construction sector because over half of our workforce is self-employed.
Especially in the post pandemic era, the focus by HMRC on the industry is greater than ever, with the legitimacy of the long-term engagement of tradespeople, particularly for the SME builder simply being viewed as disguised employment.
HMRC Status Review
To back up their arguments for reclassification HMRC’s approach can be characterised by five simple questions, the failure of the majority of these suggesting that reclassification as inevitable:
- Does the sub-contractor supply his own materials, plant and equipment?
- Is there a valid contract in place, or does the sub-contractor employ other sub-contractors?
- Can the sub-contractor demonstrate that he can make a loss as well as a profit?
- Can the sub-contractor demonstrate that he has an active portfolio of other clients?
- Does the sub-contractor have control over how the work is performed?
If the answer to the majority of these questions is NO then HMRC are extremely likely to reclassify the engagement as employment, not self-employment.
The impact of this on the employing contractor can be disastrous and lead to;
- Back dated bills for unpaid National Insurance contributions, with penalties and interest.
- Plus, the requirement to engage all future tradespeople as employees rather than as previously self-employed.
- This forces contractors to have a largely “fixed” workforce, and removes the ability to match your resources to the demands of your order book.
- The subsequent increase in payroll costs (which is usually significantly higher than 40%) plus the reluctance of skilled sub-contractors to lose their enhanced earnings, loss of expenses and reduced flexibility is effectively a death sentence to your business.
What is the solution?
By engaging EEBS for the supply of your sub-contract labour, you create an unbreachable firewall that prevents HMRC from reclassifying your self-employed sub-contractors as employees. EEBS have many, many clients who have been inspected by HMRC whilst using our services, and our business model has never been challenged.
By partnering with EEBS, we remove a lot of the administrative burden, so we take care of;
Calculate the sub-contractors CIS tax
Inform the sub-contractor of the amount that they will be paid
Include all of the engaged sub-contractors on our own status submissions to the Revenue
Provide the sub-contractor with both a payment statement for each time they are paid, plus an annual CIS deduction statement
Verify each sub-contractor with HMRC
Other Benefits
By appointing EEBS to engage with sub-contractors on your behalf include protecting your business from Employment Rights claims, i.e. holiday pay, pension contributions, unfair dismissal, discrimination and parental rights plus a massive reduction to your CIS administration.
You simply verify us with HMRC, and replace the sub-contractors that you previously reported on your CIS300 with EEBS.
EEBS also offers an additional and convenient CIS Tax Return Service to sub-contractors for £99 plus VAT, and Public liability insurance options.
“We have been working with EEBS for nearly a year now. We have found them to be extremely professional & the service they provide exceptional.”
Christine Shearing, Kenwood Groundworks
“We have used EEBS for 7 years now and we cannot fault their service. They keep us up to date with new legislation and regularly carry out compliance reviews. Their staff are friendly and knowledgeable and the processing rates are fair.”
Google Review
“Superb service from EEBS. They handle all our HMRC verification, CIS tax is always calculated correctly, and wages are always paid on time. Couldn’t recommend them highly enough.”
J&J Windows & Doors
