Compliance Target: > Counter false self-employment by employment intermediaries (staffing agencies/CIS payroll companies).
The construction sector is having high levels of false self-employment.
The tax rules in this area are complex.
If a construction worker is:
- an employee they will be subject to PAYE and NIC will be payable just like any other employee;
- self-employed they need to register with HMRC under the construction industry scheme. Importantly, acceptance into CIS is not acceptance by HMRC that the sub-contractor is self-employed.
- supplied through a staffing agency then:
- if the worker is not self-employed, the agency rules will apply such that the agency will need to operate PAYE/NIC on any payments to the construction worker; or
- if the worker is self-employed, the staffing agency is treated as the sub-contractor under CIS and will usually register for gross payment status. If an agency is registered as having gross payment status then it will pay the worker or (in most cases) a third party CIS payroll intermediary, on the basis of the worker’s or the CIS payroll intermediary’s CIS payment status. As with an individual’s CIS registration, being registered with gross payment status does not indicate acceptance by HMRC that a staffing agency or CIS payroll company is acting as a genuine construction contractor rather than a staffing supplier.
It is for the staffing agency or the CIS payroll company to determine if the worker is self-employed or not. In extreme cases, certain CIS payroll companies actually market conversion of construction company employed staff to “self-employed” solutions via the payroll company, the incentive being an instant saving of employer’s NIC.
The agency rules have changed so that all workers who provide their own services or who are involved in the provision of services to a third party under arrangements in which an “agency” is involved, will fall into the agency rules. The “agency” will be treated as the employer of the worker and income tax and NIC will need to be paid via PAYE. The “agency” will only be able to pay gross if it can show that there is no supervision, direction or control of the worker by any person (i.e. that they are genuinely self-employed). If there is no evidence, it will have to operate PAYE. The agencies also need to report to HMRC quarterly with details of any workers not subjected to PAYE/NIC and the reason for the agency not deducting tax.
The “agency” is whichever company holds the contract with the construction company client (hirer). Clients need to co-ordinate labour supplies – agencies will need to consider not only their own supplies but those of second tier supplier agencies and CIS payroll companies which supply into them.
It is hard for agencies to know whether there is direction, supervision and control of workers in this sector and so they may take a prudent approach and subject all workers to PAYE and NIC. If they do try to evidence true self-employment they will need the hirer to be prepared to share evidence to support this.
Whilst HMRC cannot go after hirers for PAYE and NIC that the agency is liable to pay (assuming they are UK agencies), the commercial risk for the hirers is of assessments against the agencies which make them go bust overnight leaving workers with unpaid wages who then look to the hirers to pay. Hirers also need to be mindful of reputational risk. Hirers will need to consider what checks and balances they include in contracts to ensure that they contract only with compliant intermediaries.
The construction sector has been and continues to be the subject of debate.
Whether someone is self-employed or employed in nature now differs for depending upon which piece of legislation you are considering. The three pieces of legislation that must be considered if you are working in the construction industry are: –
- HMRC Construction Industry Scheme.
- HMRC Agency Legislation.
- HMRC Intermediaries Legislation (IR35).
Does anyone, on site have the right to control, direct or supervise the manner in which you undertake the work?
Are you working within the Definition of the Construction Industry Scheme?
Are you in business on your own account?
Depending upon how you answer the above questions will dictate whether you must be paid as an
Or can consider being
- Self Employed
- Employed by your own Limited Company