HMRC has recently introduced a new online employment status indicator tool for electrical and other construction companies who engage, and make payments to, sub-contractors on a self-employed basis.
Firms across the country have received letters signposting them to check the employment status of sub-contractors using its CEST (Check Employment Status for Tax) tool. CEST claims to allow companies to see whether an operative should be classed as employed or self-employed, with a view to moving them from CIS (construction industry scheme) to PAYE for tax purposes.
Here, Ian Anfield, Managing Director of CIS workplace audit and contract solutions provider, Hudson Contract, explains what the tool means for firms in the industry and what they can do to avoid costly penalties resulting from CEST.
“HMRC is targeting thousands of firms which it knows regularly reports CIS payments for the same subcontractors. It hopes that some of these firms will find, after using the tool, that the subcontractors should actually be employed and will encourage them to take appropriate action moving them from CIS to PAYE.
“The financial consequences of failing CEST could be absolutely disastrous and a construction company with only a handful of subbies could be destroyed. A small error could result in firms finding themselves facing a huge bill for unpaid tax and National Insurance contributions. It could also result in CIS subbies being permanently reclassified as employees.
“A recurring issue we have seen is that many firms in the electrical industry, understandably, find tax and employment law tough to understand and when there are rigorous HMRC due diligence obligations to contend with, CIS can be a minefield.
“These changes, coupled with the Supreme Court’s recent ruling that workplace tribunal fees are unlawful, are daunting for construction firms. Firms now run the risk of facing an ongoing torrent of costly, stressful and often-bogus attempts to win an employment tribunal pay out, as well as being in danger of falling foul of HMRC status risks.
“We have already noticed a huge increase in activity with no-win-no-fee lawyers and unions once again playing the employment tribunal card at every opportunity.
“When it comes to both of these risks – CEST and tribunal cases – our experience tells us that if we deal with things correctly, work within our robust processes, and treat people fairly, we and our clients have little to fear because they are fully protected by Hudson Contract.
“We would encourage those who don’t fully understand HMRC status inspections to read up on the subject or get in touch with us. We use a much more comprehensive set of tests through our policies, procedures and contracts than those contained in CEST. We are therefore confident that the operatives engaged through us have had their status dealt with.”
Find out more about Hudson Contract and the potential impact the incorrect usage of the CEST tool and incorrect false employment could have on your electrical business: www.hudsoncontract.
