Task forces for HM Revenue & Customs (HMRC) have increased revenues from the construction industry by seven per cent. HMRC is challenging those construction companies in the UK that pay their workers as though they are self employed, when they should in fact fall within the Pay As You Earn banner under HMRC employment status guidelines.
More than £130 million has been recovered by HMRC task forces so far. In April 2015, new legislation will come into force, making it compulsory for construction companies to provide a report each quarter to confirm that employment status has been checked, and to provide evidence when a worker isn’t being taxed through PAYE. For any firm that doesn’t comply with the new regulations, a penalty or fine will be issued.
Due to the nature of subcontracted work, there may be errors or confusion leading to employment status being incorrectly identified. If a construction company fails to supply the correct documentation, HMRC may initiate an investigation.
What is CIS?
The Construction Industry Scheme is a set of rules that applies to anyone working in the industry on a self employed basis. If you are a contractor working under CIS, you have specific responsibilities you must adhered to. If you carry out work on behalf of someone else, you are likely to be employed and won’t be taxed under CIS. You will be taxed under the PAYE system as an employee. Subcontractors working in CIS have money deducted from their payments by the contractor, who then passes the money to HMRC. A contractor has to register to be included in the scheme. Although a subcontractor doesn’t have to register with CIS, they will have a higher percentage of money deducted if they don’t.
Are you employed or self employed?
An employee generally works for someone under a contract. Employees are taxed under PAYE, while someone who is self employed will be responsible for their own tax under the self assessment system. If you are working for someone as an employee, you will be expected to perform the duties yourself and won’t be allowed to send anyone to work in your place. If you aren’t allowed to choose when or where you work, you are most likely employed.
You are self employed if you decide which jobs to accept, work when and where you like, and can send someone else in your place. If you have to provide tools yourself, you are probably self employed.
CIS and employment status are complex areas. If you require some assistance or advice, please let us know.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!