Deeming CIS Workers for PAYE

It's good news that we are starting the New Year without the threat of all labour only subcontractors being deemed as PAYE when making contract payments. (See PBR 2009 5.95)

While we are letting out a general sigh of relief, there was something of importance that could be overlooked. Para 5.94 highlights the Govt aim, through HMRC and the Employment Standards Inspectorate, to clamp down on companies that pay low paid labourers through an intermediary company.

There are many companies in the construction industry that pay unskilled workers at £6.50 ph or less (£7.50 when paid via an employment agency) through an intermediary company.  But, an intermediary company is in business to save on tax and NI, which allows a margin from which they can make an administration charge.

The problem occurs when handling part of a worker's pay as work related expenses to save on tax and NI. If expenses are genuine, this is OK for HMRC purposes, but if the pay which is left subject to tax and NI, when divided by the number of hours worked, is less than the National Minimum Wage which it will be, the ESI will be tipped off and will jump on it.

HMRC powers were increased in 2009, so that officers can work more closely with ESI to fine the companies which fail to comply with the NMW in readiness for this move.

From what I understand, it's the worker who does all the work and has to take the offending contractor/agency to the Employment Tribunal, the worker can claim back the underpayment and the ESI claims half as much again. So for once HMRC are on a win,win, they can easily discover non-compliance and then they make the bullets for ESI to arm the worker, who then fires them.

With so much emphasis on the cost v benefit of compliance activity within HMRC, this is one measure that will clamp down on non-compliance, reap in a substantial amount of revenue, all for very little in terms of man hours worked by HMRC officers.

I wouldn't like to be in the shoes of contractors, who think they are getting a good deal from the intermediary companies who offer a service which pays the low paid at these insupportable levels, when the workers armed by HMRC/ESI rise up and bite the companies that employ them.

 

 

 

 

 

Comments
jimeth's picture

Is this really clear?

jimeth | | Permalink

What the PBR actually says is:

"5.95 Following the consultation on false self-employment in construction, which closed
on 12 October 2009, a summary of the responses received will be published in the New Year.
The Government remains committed to addressing the problem of false self-employment in
construction and will continue to work with stakeholders to develop a legislative solution
that is well targeted, effective and that allows the industry to retain a flexible labour supply."

This does not seem to commit the government either to proceed with the proposals or to drop them.  Or am I mis-reading the language of the statement?  This is not very clear to me.

This looks like

Anonymous | | Permalink

another difficult to legislate without catching those not intended to be included proposals. Income shifting is another one like this

Steve Knowles's picture

Construction industry and Ghost Employees

Steve Knowles | | Permalink

 I would say that the reaction from the Industry has been very robust and HMRC have found a form of words that says exactly what the reader wants it to say.

Good to know that Sir Humphrey is alive and kicking.

 

CWalsh22's picture

Second Guessing the PBR

CWalsh22 | | Permalink

The terminology and proposals in the consultation document on 'false self-employment' were similar to those in the consultation on Managed Service Companies. Then the Chancellor announced action in the PBR 2006, which was brought in with the enactment of Chapter 9 ITEPA 2009 in April 2007.

The consultation on 'travel expenses' ended with the Chancellor announcing in PBR 2008 that the matter would be kept open and that standard compliance activity would be used to beat non-compliance. There was no change in legislation.

The current situation seems to be following the same pattern as the latter, which means no change in legislation but increased compliance activity, I just think that this is going to be in the area of NMW failures that's all.

As PAYE deeming and whether it will come into force has not been made clear, true this is second guessing but it's an educated guess and all we have at the moment.

What we do have is a clear comment on NMW failures and the intention of the Govt to stamp out non-compliance in the construction and other industries.

 

 

 

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