False self-employment in the Construction Industry
The employment status of individuals has important implications for the way they are taxed, both in relation to income tax and to National Insurance Contribution. Employees will pay income tax and primary Class 1 NICs on their earnings, deducted at source by their employer under PAYE. Their employer will be liable to pay secondary Class 1 NICs on the employee’s earnings. By contrast, self-employed persons in construction providing their services to a client company will receive any payments minus CIS tax (typically 20%), and be responsible for paying income tax and NICs on their annual profits. Profits from self-employment are liable to Class 2 and Class 4 NICs.
The Government believes that a large proportion of these subcontractors, who represent approximately one third of the active subcontractor population, and are operating as sole traders, will in fact be working under employment terms. Furthermore, HMRC compliance activity has shown that in practice these engagements will also display other features which are closer to employment. These include a large measure of supervision and control by the engager, a lack of financial risk, an obligation for personal service, and lengthy periods with the same engager. The Regulations dictate that a person (the worker) will be treated as being an “employed earner” for the purpose of NICs when they meet the conditions in the Regulations. When someone is an employed earner for NICs then employer NICs is payable by the employer (or deemed employer for NICs purposes i.e. the intermediary) and the worker has to pay Class 1 employee NICs rather than Class 2 and Class 4 NICs that apply to the self employed.
All forms of tax avoidance and tax evasion, false self employment are firmly on HMRC radar. By engaging with Marquee Contracting, the risks are completely irradiated.
For more information, or for a no obligation discussion contact us us at Marquee Contracting.
HM Revenue and Customs (HMRC) are clamping down and making examples of companies who are avoiding paying the correct liabilities. Whether a company is found to avoid the payments, submissions, incorrectly report or not at all, HMRC will be hot on their heels.
The following are examples published in the last few weeks of companies avoiding paying what is due and being caught. The risk is real and so are the punishments.
On 30th September 2017 the Criminal Finances Act 2017 (the ‘Act’) came into force. The Act introduced a new corporate offence of failure to prevent the facilitation of tax evasion. The Act is made up of four parts:
• Part 1 – The proceeds of crime, money laundering, civil recovery, enforcement powers and related offences
• Part 2 – Money laundering and asset recovery powers will be extended to apply to investigations under the TACT (Terrorism Act 2000) and POCA (Proceeds of Crime Act 2002)
• Part 3 – Created two new corporate offences for failure to prevent facilitation of tax evasion
• Part 4 – Minor and consequential amendments to POCA and other Acts
Reasonable procedures to prevent the facilitation of tax evasion must be in place in order to establish a defence for ‘failure to prevent’. With an unlimited fine and criminal record for corporations if convicted, the whole supply chain is under scrutiny, irrespective of sector and size.
Like the Bribery Act 2010, the aim of the new offence is the make it much easier to convict corporations for the facilitation of tax evasion by their associated persons or employees.
The following example demonstrates how a corporation will fall failure of the new offence if all three steps are established:
1. A tax payer commits tax evasion (contractor or payroll company)
2. A third party commissions and criminally facilitates (the facilitator) the offence (recruitment consultant)
3. The facilitator associated with the corporation (recruitment consultant’s employer)
The criminal intent on the part of the tax evader and the facilitator must be established however the corporate can be convicted even if they did not benefit from the offence.
The offence is a very strict liability offence. If stages one and two are commented then the relevant body will have committed the offence, unless it can demonstrate it has put into place robust preventative procedures and can be liable for an unlimited fine. There are six principles within the guide to prevent:
1. Risk assessment
2. Risk based prevention procedures
3. Top level commitment
4. Due diligence
5. Training and communication
6. Monitoring and review
In short, if you are engaging with a company who willingly offer and process ‘kickbacks’, think again as you can and probably will fall fail of the new legislation.
The new Autumn Budget will replace the Autumn Statement this year and will be delivered on Wednesday 22nd November 2017. The Autumn Budget outlines the fiscal forecasts from the Office for Budget Responsibility (OCR), planned tax changes for Tax year 2018/2019 and future years.
What are we expecting from the Autumn Budget? We won’t have a concrete answer until the 22nd November, however in response to the UK Spring Budget, there is likely to be a shake up with tuition fees, student loans and pensions. Along with a pledge from Hammond to inject £10 billion of funding for the Help to Buy scheme. Stamp Duty is seen as a deterrent to home movers and puts pressure on the UK housing market, therefore there have been calls for stamp duty to be removed for older homeowners. This would encourage people to downsize and free up the much needed space for younger families. Pension tax relief could also be under the microscope as currently relief is linked to the income tax rate of a saver, meaning higher tax payers receive 40% relief, whereas basic rate payers are given 20% relief.
We will publish an overview of the budget in due course – in the mean time the following link provides more information Autumn Budget 2017
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