we have a client who is using a CIS contractor service - wont say which!
the client has 4 sub-contractors in play
the contractor service has moved 3 of these into a PAYE system. they have stated that they have done this as the subcontractors earn less than £80 per day
they are now being charged employers NI, but the contractor service still suggests they are self employed!
have to be honest I've not come across this before and I cant find any reference to this anywhere
is this right??
Replies (2)
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Sounds like they are caught by the Employment Intermediary rules
There are special rules (s44 ITEPA 2003 and NIC regulations) which can impact on self-employed individuals who operate through an intermediary. These rules were tightened up last April with the effect that it is much harder to "work around" them. They create a deemed employment BUT only for PAYE tax and NI purposes. In all other respects the individual remains self-employed. Unlike workers who are employees of an "umbrella" intermediary, self-employed individuals are not covered by the National Minimum Wage so many intermediaries will use this mechanism for situations where the fee for the service is at a rate below £9 or £10 per hour. The logic being that below that rate they can't afford to pay a rate to the worker which meets NMW requirements as they also have to cover their overheads from the fee charged.
So yes it seems right, as far as I can see.
Why not ask the "contractor service"?
Might it be based on a tax saving calculation? On £80 a day, working 5 x 52 days a year, they would earn £20,800, on which the CIS tax deduction would be £4,160. As employees, they would get £10,000 tax free, so would pay only £2,160 tax at source, a saving of £2,000. As employees they would pay £1,541 of Class 1 Ee's NIC at 12%, but as self-employed, Class 4 NIC of £1,156 (less 9% of any self-employed expenses) - an additional cost of £385+.
Why not ask the "contractor service" for an explanation?