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CIS

Does HMRC consider sub contractors as employees if they work continually for one contractor

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We started using quite a large umbrella company to pay our sub contractors as we were advised that if a sub contractor works for a contractor on a regular basis for more than two years they could be considered employed and the Contractor could face a large PAYE bill. We don't want to leave ourselves open to any weaknesses for the future and thought this was the best way forward.  We have approx 25 sub contractors being paid on a monthly basis.  The umbreall company have assured us that they are insured and covered and have tax advisors etc.  Any advice would be helpful.  Thank you

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By Duggimon
18th Aug 2020 17:11

Sub contractors do not need to work for a range of contractors to be correctly classified as sub contractors, and the "two year rule" you've been advised of is, as far as I am aware, entirely fictitious.

There are a number of factors to take into account when determining whether someone is correctly classified as a sub contractor which, if you are routinely engaging people as such, you need to make yourself aware of.

There's a basic run down of the points to consider here, to get you started. https://www.gov.uk/employment-status/selfemployed-contractor

Your accountant should be able to help as well as it's really a tax related query.

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By SteveHa
18th Aug 2020 22:06

I'm guessing that you are not talking about subcontractors in the construction industry, because if you are, the answer is because CIS is practically PAYE but more expensive.

Otherwise, read Duggimon's answer.

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Replying to SteveHa:
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By airgead
20th Aug 2020 10:33

They are sub contractors in the construction industry and earning quite high daily rates

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By zebaa
18th Aug 2020 22:23

@ Steve 'I'm guessing that you are not talking about subcontractors in the construction industry, because if you are, the answer is because CIS is practically PAYE but more expensive.'

Construction is a hire-and-fire industry a lot of the time. On a general turn down in the country's economy construction is often hit hard & early. Hence, hire-and-fire.

CIS gives no holiday, no redundancy, no sick pay. That's why some go down the CIS route.

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blue sheep
By NH
19th Aug 2020 07:20

And I would advise you to be very wary of taking tax advice from an umbrella company or even believing anything they say

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Replying to NH:
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By SXGuy
19th Aug 2020 07:59

I agree. Just had a new ir35 client come to me because his prev accountant advised an umbrella, turns out it saved him nothing, but cost him more because of their charges. All because he was convinced it would save tax, it didn't obviously.

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Replying to SXGuy:
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By Paul Crowley
19th Aug 2020 10:51

Based admittedly on a very small sample, Anyone who googles how can I pay not tax ends up paying tax and fees exceeding what the ordinary person paid who did not look to evade, whoops avoid tax
Penalties and interest not included in above.
Usually just deferring the tax

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By Wanderer
19th Aug 2020 10:58

airgead wrote:

The umbreall company have assured us that they are insured and covered and have tax advisors etc.  Any advice would be helpful.  Thank you

Take that with a pinch of salt.
Similar to tax schemes where they spout on about having a barrister's opinion that all is okay. Generally, if they say that, my advice is to avoid.
The umbrella company will have folded (clever eh?) long before this becomes an issue, leaving the contractors to pick up the tab.
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By airgead
20th Aug 2020 10:42

Thank you all for your replies, however my original question was does HMRC consider a sub contractor (working in the construction industry) to be an employee if they continually work for the contractor over a two year period. We are not trying to avoid responsibility or paying tax we just want to deal with things correctly. Using the umbrella company was advised as it removed this concern but now we are thinking perhaps the two year advice was not exactly correct!

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Replying to airgead:
By Duggimon
20th Aug 2020 10:52

airgead wrote:

Thank you all for your replies, however my original question was does HMRC consider a sub contractor (working in the construction industry) to be an employee if they continually work for the contractor over a two year period.

And the answer to that question, as I said, is no. HMRC might consider such a person an employee for other reasons, but not by virtue of being contracted for a period of two years.

The other comments on shady companies promising tax savings come from you having been dealing with a company who have lied to you about the tax rules in order to get your business, and are therefore almost certainly one of these shady companies.

Personally, I am not aware of HMRC ever seeking to reclassify any contractor working and reporting under CIS as an employee. It may have happened in the past but not to any of my contractors or sub-contractors.

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Replying to Duggimon:
blue sheep
By NH
20th Aug 2020 11:03

Personally, I am not aware of HMRC ever seeking to reclassify any contractor working and reporting under CIS as an employee. It may have happened in the past but not to any of my contractors or sub-contractors.

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Its not happened to any of our clients either however it does happen, personally I think if HMRC had the resources they could go after this in a big way and it may well be a campaign in the future, just because you don't get a tap on the shoulder doesnt mean there is no one lurking behind you

Either way especially given the size of the OPs operation proper paid for tax advice should be taken.

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Replying to NH:
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By Paul Crowley
20th Aug 2020 12:52

There was a campaign going way back, We had one where HMRC started an enquiry on the corporation tax and brought along PAYE officer.
Sub contractors and vans is where they headed

I agree not seen any challenges recently, but then HMRC seem to have slimmed down on general enquiries and are much more aimed and driven at big figures and easy targets

The 2year trigger to reconsider status did used to be a common rule of thumb used by HMRC to avoid timewasting on trivial reclassifications. Absolutely no basis in law, just something seen on prior visits

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By psimonparsons
21st Aug 2020 07:22

Are they registered and regulated for Anti-money laundering.

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By psimonparsons
21st Aug 2020 07:22

Are they registered and regulated for Anti-money laundering.

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