Sub-contractor engagement – time for a checklist

HMRC are taking a keen interest in employment status in the construction industry. And the regulations may be a lot more complicated to fathom out than you think, argues James Dawson from Barlow Andrews.

Many different sectors are confronting issues related to employment status and tax right now. Whether someone you engage is seen as an employee or a self-employed contractor clearly makes a difference to HMRC, particularly with regard to the collection of National Insurance contributions. Which means the government is taking a keen interest in the issue.

In the construction industry, you could see two people working side-by-side on the same site, doing exactly the same job, but one of them might be an employee and another might have genuine status as a sub-contractor. The old adage that you can’t judge a book by a cover applies.

So how can you tell the difference and make sure that you’re on the right side of the Revenue? Well, it’s complicated and not as black-and-white as many engagers and sub-contractors would like. But here are some of the issues that you definitely need to consider:

Substitution

Can the sub-contractor provide a substitute in the event that they are unable to perform their role? If they are unable to do this – or you’re unprepared to accept it – then they are likely to be classed as employees.

Control, risk and credibility

Who is it who decides how a job should be done? Who is responsible for putting it right? If someone is a sub-contractor, they will have a large degree of autonomy over the way they deliver their service and will be expected to be accountable for it. It will also add to their credibility if they have a formal business set-up and/or premises of their own.

Sick pay and holiday pay

These are benefits only available to people who are on the payroll. If someone is claiming to be self-employed, while receiving sick pay or holiday pay, their status is immediately called into question.

Previous employment

If someone who was previously employed is suddenly re-engaged as a contractor, that obviously raises questions as to how genuine their status is.

Interviews and appraisals

While it’s normal to meet a sub-contractor before engaging them, they would not be expected to participate in any kind of formal job interview. That’s something reserved for prospective employees.

Equipment, material, travel and other factors

A genuine sub-contractor will provide their own equipment for the work that they do and pay their own travel costs, which then become tax-deductible business expenses. You need to also consider the visible trappings of work on the site. If someone is wearing your company sweatshirt or driving in a vehicle you’ve supplied, that will be taken as a strong indication that they are your employee.

The onus is on the engager to make the necessary judgements, by asking questions of sub-contractors and making use of an online tool provided by HMRC. Because this area is complex and constantly changing, it is definitely worth talking to your accountant if you have any concerns or queries.