Removing the financial risk.
The team at RIFT Legal Services are leading experts in the field of employment status and have extensive experience in defending status disputes with HMRC. They have an intricate knowledge of the case law and legislation that surrounds this area and can not only provide the advice and support to ensure companies get employment status correct but they can defend the disputes if HMRC mount a challenge against the company.
It is therefore unlikely we will lose cases in this field but the result at a tax tribunal can be unpredictable and a successful outcome can never be guaranteed no matter how confident you may be. With all services of this nature it is a case of assessing the risk and ensuring the best possible defence is in place, based on expert advice.
What other risks are involved?
Although the changes are more than two years old, HMRC status enquiries can take even longer than that to resolve, and many are settled without appearing in tribunals. Test cases could be months or years away, and if a judgement then finds that a certain construction firm is an agency exercising control on a worker, this could have serious ramifications across the industry.
One risk is that an unprepared contractor goes up against the tax authority with a poorly prepared argument and loses. This could create case law that makes it much easier for HMRC to use agency legislation to claim national insurance payments from other contractors.
Given what is riding on such a test case, HMRC would be well geared up to win it. Spurred on by support from the government, trade unions and the current media spotlight, HMRC has promised “high-quality and hard-hitting results”.
This means HRMC is a much stronger opponent in status challenges than it used to be. As the name of its new unit testifies, HMRC is particularly keen to probe self-employment through intermediaries. These third-party companies have sometimes been used by firms in the construction sector to pay subcontractors, with the intermediary taking on the administrative burden and the risk of status enquiries.
HMRC has clarified that in the example of the homeowner’s extension, if ABC Builders used an intermediary to pay workers, the tax body would see both the contractor and the intermediary as agencies – with the construction firm still liable for national insurance payments. It is only ever the end client who is never liable.
Further to this, HMRC has brought in reporting requirements for intermediaries. Now anyone who supplies individuals’ services to clients must send reports to HMRC every three months detailing any payments made to workers that do not go through PAYE. These reports – along with the Construction Industry Scheme through which most contractors must pay their subcontractors – give the tax authority clear sight of individuals and companies to target for employment status checks.
How much will it cost?
The cost of our service depends on the nature of your business and the risk. If you are a construction company engaging self-employed individuals we typically charge 1.5% of what you pay to the self-employed individuals. If you are outside construction or an intermediary (such as a recruitment agency), the risk and exposure to a challenge is greater and as such our fees are normally 3% of what the individuals are paid. To begin we will undertake a review of how you operate and provide a report. This is a chargeable service, but then fully refundable if you proceed with our service.
The costs of a employment status challenge for unprepared companies go way beyond the legal fees and liability payments. Enquiries can last for years. A range of evidence will be gathered including meetings with business owners, records, correspondence back and forth and interviews with the workforce. If a firm disagrees with HMRC’s decision, it can then appeal to a tribunal and have the case heard in front of a judge.
In the experience of RIFT Legal Services, it takes more than two years for the average status enquiry to be resolved, with defence fees reaching £20,000 in some cases. Due to a number of appeals and changes of authority, one particular dispute – not involving RIFT Legal Services – lasted 12 years. Unsurprisingly, drawn-out legal processes such as this can have knock-on effects on construction businesses. HMRC can interview subcontractors, and this can make them nervous with the result that a substantial proportion of your workforce might prefer to go and work elsewhere. Word can spread and customers and partners start to know you have an HMRC enquiry. People assume you are doing things you shouldn’t be – even if you’re not.
What liability would I face if there was a dispute and I was not using RIFT?
If the work is in construction then tax will already have been accounted for via CIS and so it will only be the employer’s national insurance which will accrue and a small amount of employee’s national insurance. This builds up quite quickly though and when you start multiplying employer’s national insurance (13.8%) across all payments you have made to self-employed people and then stretch it back the 5 years and 10 months HMRC can apply it to and it soon becomes a substantial sum of money.
If the work is outside the construction industry, HMRC will initially assess the business for all tax and national insurance unless the company can show the individuals have self-assessed and paid their own tax and national insurance. If that is the case it will just be the NI as above. If not, the liabilities will be vast.
When will my protection begin?
RIFT Legal Services cannot protect you for what has already happened in the past. As part of our service we would defend any HMRC challenge relating to employment status since you started using our service. As time goes by and you have been using RIFT for a longer period of time, then HMRC’s window of opportunity along with your risk significantly reduces.
Download our White Paper
Produced in partnershi[p with Construction News this white paper provides all the practical advice you need to successfully withstand the scrutiny of an HMRC employment status investigation, avoid unnecessary liability costs and enjoy the sense of security that comes with the knowledge of full compliance.