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.