Tax Tip
12 Jan 2010
Labour only Subcontractors Review
By Anne Rooney, Director, FPM Chartered Accountants
Question
I am a self employed joiner and I have been told by the contractor from whom I get most of my work that HM Revenue & Customs are investigating whether I should be paid as an employee of his business or continue to be paid under the Construction Industry Scheme. What does this mean for me?
This is an area HM Revenue & Customs are reviewing again with the view that sub contractors supplying labour only should be employees and not self employed. This basically means that you would be taxed via the PAYE system and not the Self Assessment system.
The implications if you are an employee can be more onerous on the contractor as HM Revenue & Customs may go back 6 years and charge income tax at the relevant rates of 20% & 40% and Class 1 National Insurance Contributions for employees at 11% and employers at 12.8%. Interest and penalties will also be charged.
As a self employed individual you are taxed at 20% & 40% on your business income after allowing for tax deductible expenses. You are also liable to Class 4 NIC at 8%.
To ensure that you remain taxable as a self employed individual you must be able to demonstrate some of the following:
- Payment received on part or full completion of contract and terms of each new contract renegotiated
- Your business carries some risks either potential loss of money or correcting defective work at your cost
- You control when and where the work is completed
- You carry out work for various contractors
- If you are unavailable to carry out the contract that you get someone else to substitute
HM Revenue & Customs have a helpful checklist on their website to help you determine if you are self employed or employed.
To discuss your individual circumstances you should contact a professional adviser.
The advice in this column is specific to the facts surrounding the questions posed. Neither the Democrat nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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