Introduction
The Revenue has commenced its attack on contractors in the Construction Industry. They announced that from 9th August 2004 they will be issuing letters to 57,000 taxpayers working in the Construction Industry asking them to reconsider their own or their workforce’s status as self employed.
They have reviewed the Construction Industry Scheme (CIS) records and contractors who have paid particular sub-contractors regularly will be receiving a letter. It will state that the Revenue believe the Contractor has got it wrong and these sub-contractors should be employees. The sub-contractors will also receive a similar letter.
If a sub-contractor or contractor does not receive a letter it does not mean they are safe from attack from the Revenue. They also should review their procedures.
The Revenue is clearly setting up this exercise in preparation for the new CIS, which is to come into operation from April 2006.
Your employment/self employment status will come under scrutiny, which is similar to IR35 whereby the Revenue will assess whether or not you are generally self-employed.
Background
This area is extremely complex and the Revenue is continuing its initiative, which started with their attack on contractors in such areas as IT and oil exploration.
Now they are taking a similar approach to the construction industry and are currently recruiting more status inspectors, presumably to deal with this latest attack.
What does it mean to the contractor and sub-contractor in the Construction Industry?
Simply the Revenue is seeking to re-classify some workers as employees.
They will make the case that a worker should not have been operating through his CIS certificate and as he is an employee he should be taxed through the PAYE system and pay his tax at the basic and higher rates and most importantly there will be a liability to Class 1 National Insurance Contributions of 11% for employees and 12.8% for employers.
In addition the expenses claimable will have to be reviewed as the rules for the self-employed and employees are substantially different.
There may also be Interest and Penalties charged where the Revenue believes the contractors and sub-contractors have got it wrong.
How does a worker know whether they should be within the Construction Industry Scheme or if they should be an employee?
This is a very grey area and workers need to examine their working practices and consider if they control how and when they work, do they provide all their own equipment and could they send a substitute instead of themselves?
These are only some of the issues to be considered. There are many other questions the Revenue will want answers to should they review the status of a worker.
In the letters the Revenue will invite the recipients to contact them and they will ask them for their details and run them through a computer programme, which will make the decision.
This software is by no means infallible and its findings should be checked in all cases. They will also invite those without letters who are concerned to contact them and again their computer will provide their answer.
What should contractors and sub-contactors do?
Firstly they should take professional advice and have a risk assessment conducted to review their own status or the status of their workforce.
This would determine how much additional tax and National Insurance may have to be paid by the contractor’s or sub-contractor’s if they have been operating within the Construction Industry Scheme incorrectly.
They should not rely on the Revenue checking their position. An independent review may take a completely different view and offer some hope that they may not be charged to additional duties.
Secondly they should consider what would happen if the Revenue was to review their status in detail. Who would pay the accountants fee for this review? Some status reviews can last over 12 months with the Revenue calling for meetings with all the parties concerned.
Solution
Qdos Consulting are specialists in this area and have been dealing with status issues for a number of years. In the case of the equivalent status disputes where the Revenue (over the last three years) has been targeting IT contractors, Qdos has taken on over 500 cases and, where their advice has been followed, they have never lost a case. They are leading specialists in this field and therefore can offer a complete package to assist the contractor or sub-contractor. In particular they can:
- Review your working practice and assess your exposure, if any, to additional Tax and National Insurance Interest and Penalties.
- Offer Fee Protection Insurance so that if the Revenue does look closely at your affairs all your accountancy fees will be paid.
- Risk assess your exposure and offer a complete package so that after the risk assessment, if in their view you are not caught by the Status rules, then they will offer you a further insurance package which will guarantee that if the Revenue disagree with their assessment they will pay all the additional Tax, National Insurance, Interest and Penalties. You would therefore have nothing to pay, even if the Revenue were successful, giving you complete peace of mind.
If you work in the Construction Industry you can contact Qdos on their dedicated Construction Industry Hotline on 01455 852050, which is available from 9.00 am to 5.30 pm or access their website.