Carousel_Arrow Chat icon_cookie IHT_trust_wills IR35 Combined Shape 2 Group 10 Login Mobile Menu Share Share Email SubMenuMobile Group 9 VAT View_Gallery View_List capital_allow Triangle 2 Copy Close construction cyberpro employment_tax_shares emplyer_solutions entrepreneurs_corps fee_protect Group 7 grant_fund Group i_Clock i_Consult i_Done i_Eligibility_Tick i_Enter i_Filter i_HMRC i_Negative i_Play i_Plus i_Reset i_Support_Legal i_Support_TaxDesk i_Support_VAT i_Tick noun_marketing_1872083 noun_online_2126759 i_download i_meet Group Copy 24 Group 18 noun_electrical_1240755 copy noun_Technology_2125422 noun_Science_2031115 i_tick_bullet_block international_tax patent_box private_client property_sdlt r_and_d reliefs_incentives Search specialist_tax status tax_indemnity valuation YouTube
Markel Tax

29 Nov 2017

Subcontractor status under scrutiny

We are aware that HMRC is presently issuing what are termed ‘one to many’ letters to engagers and advisors headed ‘Checking the employment status of your sub-contractors’.

A 'one to many' approach is where HMRC decides to send one standard message to a particular group of taxpayers, to influence their behaviour and to ensure compliance. In other words one message to many taxpayers.

The letters are effectively questioning whether the off payroll workers should be on the payroll as employees and ask that the recipient of the letter checks the status of the sub-contractors. Furthermore, HMRC suggests the online Check Employment Status for Tax (CEST) tool is utilised to do this. HMRC requests the task is carried out within 30 days of receipt of the letter and warns that contact will be made with the contractor to check what action has been taken.

In our opinion, the main purpose of these letters is to bring more workers within the PAYE regulations and appears to be a policy decision from the Treasury. 

In order to check the sub-contractors’ status, HMRC suggests using the CEST tool, which we believe doesn’t cover all of the key considerations to determine a worker’s status. The question is whether HMRC has consciously omitted some of the fundamental questions that should be considered in each and every status review. It seems that the questions are very much slanted towards the answers that HMRC is looking for rather than based on a neutral approach.  

We believe there is a danger that the ‘one size fits all’ approach will exert pressure on contractors to treat self-employed workers as employees. It is essential that contractors take a considered approach and seek specialist advice to ensure that each case is judged on its own merits and circumstances.  

Additionally, if it is decided that the worker’s status should be changed, consideration should be given as to whether there is a danger that HMRC may seize the opportunity to undertake a formal review for earlier years, the argument being that if the terms and conditions of an engagement are unchanged, then the status of the sub-contractors has been incorrect in prior years also. This could lead to contractors being exposed to significant tax liabilities for PAYE/NIC, interest and tax-geared penalties.

It is important to recognise that the letter is a form of intervention and is not a formal request, issued using any statutory legislation and as such compliance with the request is on a voluntary basis. Apart from warning that HMRC will follow-up the letter in 30 days, there is no reference to what specific action, if any, will be taken should the contractor decide there is no need to take any further action. 

In our view, any decision to change a worker’s status should be carefully considered because of the implications for the past, the present and the future. On a positive note, the letter could be considered a warning shot to contractors to check they are tax compliant.
We believe it is vital for contractors and their advisors to consider carefully all aspects of the engagement between the engager and sub-contractor. We always advise that businesses check that the written contractual terms accurately reflect the day-to-day working reality. The next step is to check this information against the status tests.  

We specialise in assisting businesses that either wish to check the status of their workers or are under investigation. We have a proven track record of successfully resolving disputes and have built up a wealth of experience in this specialist area.  

Jacqui Mann and Nigel Nordone are experienced tax professionals who specialise in PAYE and status matters as well as regular involvement in drafting and reviewing status contracts. As such, they are uniquely placed to assist contractors and their advisors with a view to minimising the risks of further unwanted HMRC attention and providing peace of mind and support to those contractors in receipt of these letters.
Next article in series

27 Nov 2017

Autumn Budget 2017: Disguised remuneration – a further update

Receive your regular Markel round-up

Sign up to our monthly newsletter

Security code