Construction industrys payroll scheme usage puts companies at risk of hefty taxes
The “Onshore Employment Intermediaries” legislation was introduced by HMRC in April to tackle what it saw as the exploiting of self-employment for tax purposes when workers are not genuinely self-employed.
Under the new rules any workers supplied through an intermediary* that are under someone’s “supervision, direction or control” will be treated as employed for tax purposes by HMRC. It is the intermediary that is responsible for deducting tax and National Insurance as if the worker is an employee.
NoPalaver warns that some of the payroll schemes being promoted to construction companies require the business end user and its workers to sign letters or contracts declaring that self-employed contractors are not under “supervision, direction or control”. The intermediary then continues to treat the worker as self-employed.
According to NoPalaver, any business end user that signs such a letter could leave itself exposed to a big bill for PAYE, NICs and penalties and interest in an HMRC investigation.
This is because the intermediary can rely on the declaration signed by the construction company to show they are not liable in an HMRC investigation. Effectively, the construction company is being induced into signing a letter that HMRC could view as fraudulent. This passes the liability for tax and national insurance on the income to the construction company.
Graham Jenner, director of NoPalaver Group, commented, “The recent changes to the rules about self-employment are very radical but some of the schemes being marketed to construction businesses don’t reflect this.
“Some payroll providers are exposing the businesses that use their services to a high risk of a large tax bill and fines because they are taking a business-as-usual approach or offering new solutions that are likely to fail if HMRC investigates them.
“Schemes that require a disclaimer to be signed about whether workers are under & lsquo;supervision, direction or control’ are very worrying, as these would put the business end user directly into HMRC’s firing line in the event of an investigation.”
Construction companies used to pay workers through an intermediary as this eliminated the risk that the worker would be treated as their employee. Ironically, under the new rules, a genuinely self-employed worker paid through an intermediary will be taxed as though they are an employee unless there is no & lsquo;supervision, direction or control’.
Jenner added, “Construction businesses should be very wary of signing a disclaimer like this because if HMRC investigates, the scheme is highly unlikely to offer the construction company the protection that it expects or that the intermediary promised.”
* Such as construction payment companies or payroll companies that sit between the contractor and the construction company.