If you are not fully compliant HMRC can reclassify your subcontractors as employees and go back to earlier years and calculate the PAYE tax and National Insurance you should have deducted and charge interest and penalties – even if you have deducted the CIS tax!
If you are found not to be fully compliant in addition to going back to earlier years HMRC can insist you operate PAYE in future on all your subbies.
1. Can your business afford to pay sickness pay holiday pay etc in addition to 13.8% employers’ class 1 National Insurance?
2. If you have to increase your rates and tenders, will you still be competitive, and will you still get the work?
3. Will your subbies still want to work for you if you have to reduce their rates, and deduct employees’ class 1 NI at 12%, for your business to remain competitive.
1. Have an up to date contract for services signed by you and your subbie. You could also draft a statement of working practices to confirm that they actually work to the terms of the contract for services
2. Make sure you have a weekly invoice even if it is a self-billing invoice.
3. Make sure your subbie has his own Public Liability insurance and he does not rely solely on yours.
4. Review your practice every 12 months. If a subcontractor has worked solely for you for over 12 months HMRC may take that as an indication of employment not self-employment.
5. Do not let your subbies use your small equipment, they should have their own and never give them a company van.
6. Consider getting a professional compliance review and take out Tax Enquiry Insurance to cover your costs should HMRC come calling.
1. What does it mean for me if HMRC do not think I am genuinely self-employed?
2. HMRC can reclassify you as an employee and subject your payments to PAYE even if you are having 20% CIS tax deducted. This will mean you have to pay an additional 12% National Insurance. Your contractor may have to reduce your rates to remain competitive as he will have to pay 13.8% national insurance.
3. How can I ensure that HMRC will agree that I am self-employed?
- Make sure you have a contract for services with your contractor
- Obtain your own Public Liability Insurance
- Make sure you use your own equipment and van wherever possible
- Send a weekly invoice for your services to your contractor.
If you are a contractor or a subcontractor and looking for tax advice please contact us today.
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