Latest Newsletter From the Construction Team
When is a Sub contractor an Employee? Challenging the HMRC
The following is a case study. In May 2005 a contractor with over 50 labour only sub contractors operating with CIS4 certificates had an approach from the HMRC, who interviewed six of the sub contractors and came to the conclusion that they were all employees.
The HMRC then carried out a subsequent investigation and reported that the contractor owed them £100,000, that all the sub contractors needed to be re classified as employees, putting over 30% on the costs of employing them.
The contractor employed specialist consultants who investigated and concluded the contractor had a good case.
The consultants carried out investigations over a period of six months before finally presenting the revised case to HMRC. The nett result was that HMRC reduced their demand from £100,000 to £20,000. The consultants viewed this as no more than a gesture from HMRC, and continued with the case for another 12 months. The final result was that the tax demand was withdrawn in its entirety, and HMRC agreed that the sub contractors could continue to operate in their existing self employed status.
The same consultants then carried out an exercise in helping the contractor to adopt the necessary procedures with the relevant paper work in place, to ensure that any future HMRC investigation could be dealt with effectively and promptly.
Recommendations
1. Make sure that you receive expert advice about the correct status of your sub contractors and use experts to ensure that you have the necessary records and paper work in place, in readiness for any HMRC investigation.
2. Do not think that HMRC’s demands are incapable of being challenged, and make use of expert representation in respect of your defence.
Source: QDOS Consulting Ltd
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