Take Care Over Sub Contractors Wages
Bogus self-employment in the construction arena is back in the spotlight following the Chancellor’s recent Budget.
In these uncertain times the taxman is not expected to be at the top of any contractor’s invitation list.
So why walk the cliff edge by not taking a reasonable amount of care?
Prior to the new Construction Industry Scheme (CIS) introduced in April 2007, consultations over badges of trade (automatic categorisation of employed earners) were dismissed for a variety of reasons.
Instead, contractors are obliged to recategorise the subcontractors to employees or operate CIS and make statutory employment status declarations on the monthly CIS300 returns.
Incorrect declarations not only carry a PAYE/NICs risk but also material penalties of up to £3,000 per return.
The obvious subcontractors at risk of HMRC recategorisation to employment status would be labour- only sole traders permanently engaged over an extended period.
However, there are many more HMRC sanctions that may not be so obvious – withdrawal of CIS gross payment status, CIS issues when engaging a nominated payee intermediary or a managed services provider through an umbrella company.
While HMRC clearances are achievable, the transfer of PAYE debt regulations do not make pleasant reading for those contractors that fail to correctly administer “HMRC approved” schemes! Those contractors that do not indirectly engage subcontractors through intermediaries need to conduct a reality check of the working arrangements in practice. If carefully crafted written clauses are subject to variation then trouble may be lying ahead in the form of substantial PAYE/NICs shortfall, including “harmonised” interest and material penalties.
It is worth looking at the alternatives to self-employed labour engagements and turning to direct employment.
Employers of a mobile workforce are naturally concerned with the constant overhead cost of wages, statutory holiday pay, redundancy payments, expenses, etc.
However, these direct costs can be mitigated by obtaining tax clearances from HMRC by way of a comprehen- sive P11D dispensation and legitimate tax and HR planning that offers significant savings.
To the discerning financial controller, tax is not the only issue, which is illustrated by expenses management recently coming under intense scrutiny following the highly- publicised review of MPs’ expenses claims and benefits.
It is not just our honourable politicians that are in hot water over their expenses claims. With tighter profit margins these days, a casual attitude to administering employees’ expenses could damage a contractor’s bottom line.
Instead, it is recommended that appropriate control over the “allowable” tax position should be used as the catalyst to cut down on errors which could result in mistakenly signing off personal expenses or benefits.
Contractors with a mobile workforce are advised to make sure that payroll administrators are fully trained to prevent unnecessary financial leakage.
In these uncertain times the taxman is not expected to be at the top of any contractor’s invitation list.
So why walk the cliff edge by not taking a reasonable amount of care?
Prior to the new Construction Industry Scheme (CIS) introduced in April 2007, consultations over badges of trade (automatic categorisation of employed earners) were dismissed for a variety of reasons.
Instead, contractors are obliged to recategorise the subcontractors to employees or operate CIS and make statutory employment status declarations on the monthly CIS300 returns.
Incorrect declarations not only carry a PAYE/NICs risk but also material penalties of up to £3,000 per return.
The obvious subcontractors at risk of HMRC recategorisation to employment status would be labour- only sole traders permanently engaged over an extended period.
However, there are many more HMRC sanctions that may not be so obvious – withdrawal of CIS gross payment status, CIS issues when engaging a nominated payee intermediary or a managed services provider through an umbrella company.
While HMRC clearances are achievable, the transfer of PAYE debt regulations do not make pleasant reading for those contractors that fail to correctly administer “HMRC approved” schemes! Those contractors that do not indirectly engage subcontractors through intermediaries need to conduct a reality check of the working arrangements in practice. If carefully crafted written clauses are subject to variation then trouble may be lying ahead in the form of substantial PAYE/NICs shortfall, including “harmonised” interest and material penalties.
It is worth looking at the alternatives to self-employed labour engagements and turning to direct employment.
Employers of a mobile workforce are naturally concerned with the constant overhead cost of wages, statutory holiday pay, redundancy payments, expenses, etc.
However, these direct costs can be mitigated by obtaining tax clearances from HMRC by way of a comprehen- sive P11D dispensation and legitimate tax and HR planning that offers significant savings.
To the discerning financial controller, tax is not the only issue, which is illustrated by expenses management recently coming under intense scrutiny following the highly- publicised review of MPs’ expenses claims and benefits.
It is not just our honourable politicians that are in hot water over their expenses claims. With tighter profit margins these days, a casual attitude to administering employees’ expenses could damage a contractor’s bottom line.
Instead, it is recommended that appropriate control over the “allowable” tax position should be used as the catalyst to cut down on errors which could result in mistakenly signing off personal expenses or benefits.
Contractors with a mobile workforce are advised to make sure that payroll administrators are fully trained to prevent unnecessary financial leakage.