Checking the employment status of your employees

Within the accountancy profession, we have noticed a distinct increase in activity in this area from HMRC in recent days. A significant number of our clients in the Construction Industry have received letters from the “Wealthy Midsized Business Compliance – Employment Status & Intermediaries” section of HMRC, operating from Newcastle.

The letter points out that it is the responsibility of the business engaging the worker to consider whether that worker should be treated as employed (and subject to PAYE regulations and deductions) or self-employed (and therefore subject to CIS – Construction Industry Scheme – regulations and deductions). In most circumstances, the amount eventually payable to HMRC is greater under PAYE than under CIS regulations.

HMRC are suggesting that a check be carried out for each relevant worker within the next 30 days, and that they will be following up later to ask what action has been taken. It may be that the follow up is by way of telephone interview, or written questionnaire, or indeed a physical compliance visit may be booked. At the moment, we have not had any indications of the most common method and depth of the follow up – we will of course issue further information as we learn more.

There have been no recent changes in the regulations surrounding workers to bring about the surge in activity, it is clearly a drive from HMRC to ensure that the existing regulations are adhered to.

The fact that a worker is currently paid with tax deducted under the CIS scheme and has a Unique Tax Reference Number (UTR) from HMRC as issued to self- employed workers, is not evidence in itself that he/she should be treated as self-employed for the purposes of payments and deductions.

The correct treatment depends on the nature of the task undertaken and the relationship between the paying business and the worker. As suggested by the recent letter from HMRC, guidance can be sought by referring to www.gov.uk, and searching for “Checking employment status for tax (CEST)”. A checklist will be found there, and the answers given to the various questions asked will suggest whether the worker should be treated as employed, or self-employed.

HMRC are suggesting in their letter that you should retain evidence of the review of each worker’s situation and the resulting decision, as they may wish to check them.

We have a dedicated team at Lambert Chapman with significant experience in this area, and would be please to help with reviews if needed. The team is led by Duncan Forsyth, who can be contacted by email.

Posted by John Smith-Daye