Tax & admin · 13 February 2018

HMRC employment status indicator tool launched for construction companies

Construction firms may be encouraged to move workers to a PAYE scheme

An online tool indicating employment status for construction companies that hire and make payments to self-employed workers and sub-contractors, has been introduced by HMRC.

The Check Employment Status for Tax tool (CEST) allows company bosses to check whether a worker should be classed as employed or self-employed, for tax purposes.

According to HMRC, CEST will enable construction business owners, including builders, plumbers and electricians, to move workers from the construction industry scheme (CIS) to a PAYE scheme if necessary.

Under CIS rules, construction companies can deduct money from a subcontractor’s pay and pass it directly to HMRC. The deductions then count towards that subcontractor’s tax and national insurance payments.

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HMRC hopes that by introducing CEST, construction companies which regularly report CIS payments for the same subcontractors will realise that those subcontractors should actually be employed and, after using the tool, will move them onto PAYE schemes.

Managing director at CIS workplace audit and contract service provider Hudson Contract, Ian Anfield, welcomed the CEST tool but warned construction companies about the financial consequences of failing to understand their tax obligations.

He said: “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.”

For employers in the plumbing and construction sectors, a recurring problem has been that tax and employment law is increasingly hard understand.

Anfield added that HMRC’s due diligence obligations for plumbing and construction firms are particularly rigorous, and that complex rules surrounding CIS can be difficult for employers to decipher.

“These changes, coupled with the Supreme Court’s recent ruling that workplace tribunal fees are unlawful, are daunting for construction firms,” Anfield went on to say.

“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,” he said.

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Business development