The construction industry

Over the years, the Construction Industry Scheme (CIS) has been subject to a number of changes and reviews. Despite this, the Inland Revenue still has two main areas of concern. The first is fraud, particularly paying ‘off the books’, and the second is the job status of the people working within the industry. Major changes will be implemented in April 2006 to try and address the first point. The second point is a continuing area of risk.

The status of workers ie whether they are employed or self-employed, is not a new subject but the Inland Revenue is targeting it again. Last year they sent out thousands of letters to contractors in the industry warning that they were not happy with the position of workers within those businesses and inviting them to review the terms on which subcontractors are engaged. In view of the Inland Revenue’s increased ‘interest’ in the industry, it is probably advisable to carry out a status review even in the absence of a letter.

Should a given subcontractor be treated as employed or self-employed? The position is not always clear-cut and a number of factors are used to paint a picture. The factors must be applied individually to each situation. The main ones which will usually need to be considered are:

• whether the worker could provide a substitute or will always have to undertake the work themselves
• who controls when, where and how the work was done, the worker or the payer
• who provides the equipment used
• whether there is an ongoing obligation to offer and perform the work by the payer and worker respectively
• what the basis of payment is and whether the worker has any financial risk
• what the intention of the parties is.

The Inland Revenue is trying to establish whether the workers truly are in business on their own account. If, having considered all of the above tests, they are not happy, they may reclassify the worker as an employee and seek to rectify the position for earlier years, with additional tax, interest and possibly penalties being due.

A further issue relates to those who are paid gross, rather than net, within the construction industry. In order to be paid gross, a subcontractor must obtain a gross payment certificate and renew this on a regular basis. However, the Inland Revenue is starting to deny renewal where the subcontractor has regularly paid over their own employees’ PAYE deduction late. Non-renewal may cause severe financial hardship and it is vital that PAYE is paid over on time.

If you have any concerns about either of these issues, please contact us.