Despite all the evidence, arguments are often made that construction companies do not need to take the issue of worker status challenges seriously. As working status investigations take a long time to conclude, and many get settled pre-tribunal, there is a false sense of calm across the industry about the implications of these legal changes
A spokesman for HMRC told us: “HMRC is currently transforming its compliance approach with the creation of a new employment status and intermediaries team to focus on status and employment intermediary risks. “This dedicated resource will allow HMRC to better focus its resources and expertise to ensure these issues are effectively tackled.”
Myth: HMRC does not have the will or resources to implement employment tax law
Reality HMRC has recently taken on 1,000 case workers and has created a specialised unit to tackle what it sees as false self-employment, particularly through intermediaries.It is under pressure from politicians and trade union leaders to investigate employment status and is upping its game considerably.
Myth: My company isn’t big enough for HMRC to be bothered with.
Reality: The construction industry has a substantial number of small firms, and the tax authority is motivated to challenge employment statuses across the board. It has the Construction Industry Scheme and intermediary payment reports as handy lists of names.
Also, it may not be HMRC that initiates proceedings; sometimes in other industries it is workers themselves.While people are expecting well-known firms to be high priority targets for HMRC, it may in fact be completely the reverse of this. HMRC is keen to get case law on their side as quickly as possible. Smaller firms are likelier to be easier targets in this regard, not having the resources or internal legal expertise to be able to fight long, drawn-out cases.
Myth It is down to workers how they classify themselves.
Reality: If HMRC decide you should have been paying workers as employees, it won’t matter what the status quo is, or what the workers themselves think. Ultimately it will be decided by a tribunal and depend on complex legal reasoning.
Myth It is easy to show that someone is self-employed; the government has a list of factors you can choose from.
Reality: There are some guiding points but only ‘most’ of the 14 points have to be satisfied to show someone is employed – so you need quite a balance of evidence to refute it. Proving self-employment is even harder.
Meanwhile, there is a raft of case law from different social and economic eras that can be used to define worker status.
There is no clear and simple dividing line. However, the wording of agency legislation has changed to potentially catch some construction firms using subcontractors within the definition of agency employers.
Myth We are not an agency so we can ignore that law.
Reality Guidance issued by the HMRC shows it very much believes a lot of construction companies are agencies for the purposes of this legislation.The way the law is now worded could make it very tough for contractors to prove otherwise.
Myth No cases have been brought yet so we’re probably fine.
Reality Although it has been around for more than two years, the newly worded agency legislation is very much in its infancy.
Status enquiries can take a long time to reach tribunals, if they ever do, but when one does it could just be the tip of a major iceberg, especially if it establishes case law in favour of the HMRC guidance.
Myth We’ll start paying national insurance in the unlikely event we lose a case.
Reality If a tribunal establishes that you should have been paying workers as employees then HMRC can ask for backdated national insurance contributions that can add up to huge financial bills, potentially putting companies out of business.
Finally, let’s hear from the horse’s mouth.
A spokesman for HMRC told us:
“HMRC is currently transforming its compliance approach with the creation of a new employment status and intermediaries team to focus on status and employment intermediary risks. This dedicated resource will allow HMRC to better focus their resources and expertise to ensure these issues are effectively tackled. Where companies are believed to have misclassified individuals as self-employed, HMRC establishes the facts of the case and will take steps to ensure all the appropriate tax, NICs, interest and penalties are paid. The agency legislation at section 44 [of the of the Income Tax (Earning and Pensions) Act 2003] applies where there is a body between the worker and the user of the labour. A construction firm engaging workers directly will need to consider whether they should be properly treated as employees and PAYE applied.”
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