The Construction Contractor's Digest

THE FISHING NET

The UK Government is trying to bring in legislation that will re-classify many construction workers as employees, rather than as individual self-employed workers. The strap-lines being used are The Level Playing Field and A Fairer Tax System for the Construction Industry, the legislation is otherwise know as New CIS, or the New CIS Reform. Over the years, HM Revenue & Customs has expended relatively little energy on making the construction industry aware of the legislation that affects the employment of its workers. This meant that the issue of 57,000 letters to construction companies and its workers last year by HMRC, was seen by some as something of a fishing exercise, and after the initial flurry of interest, for many - its business as usual. But make no mistake - the net is starting to close on companies that wrongly 'employ' workers under CIS, unfortunately, those companies are now firmly on the taxman's hook.

Since the introduction of the original Construction Industry Scheme in 1999, the majority of construction companies have abided by its rules. It is rare nowadays to find a construction company that pays its workers on a ‘cash in hand’ basis. So, for the last six years, construction companies have been submitting CIS 25 vouchers to the Revenue each month, giving HM Revenue & Customs, all the information needed, i.e. the gross pay of its workforce, to make a demand for unpaid tax and NI, if contracts of employment are later seen to have existed between the contractor and its workforce. Is it just a coincidence that the time the Inland Revenue has to make a demand for unpaid tax and NI, is limited to six years? One could even say that the timing of this exercise could have been predicted.

So, those construction bosses who for various reasons have paid their workforce under CIS, if it can be proved that they should have been employed under PAYE, were actually caught in 1999. Unfortunately, unbeknown to them, they have simply been languishing in the taxman's landing net ever since.

Employment status legislation is so complex that decisions rely heavily on case law, so it is hardly surprising that many contractors do not understand the underlying principles that determine employment or self-employment. CIS cards are issued to just about anyone who applies for them, so it is obvious that no employment status checks are undertaken by HMRC. The complex nature of employment status legislation and the abundance of workers registered under CIS, are the two most important factors behind contractors getting the employment status of their workforce wrong, and so far little has changed to help the industry tackle this problem. Instead, under New CIS, the construction companies will be subject to fines of £3000 per month, for erroneously paying workers under CIS, i.e. if a check has not been made that the worker is registered and genuinely self employed.

If HMRC had addressed the matter of CIS registration and made employment status legislation more accessible, the construction industry would not now be dangling on a hook, unsure of the future. If HMRC is not simply paying lip-service to its main objectives, i.e. reducing the administrative burden and helping the industry get the employment status of it’s workforce right, then it should get its house in order, by increasing the flow of information to the construction industry, and by attending to the problem of workers confusing the issue with the tenure of CIS registration, who have no identifiable business set up, or other factors that demonstrate genuine self employment.

Construction companies already operate in a difficult industry, and for the UK Government to make the fundamental issue of paying the workforce a minefield of pitfalls and penalties, only demonstrates a complete lack of appreciation of the way that the industry works. The construction industry can only endeavour to meet this latest challenge, but what we can not stomach is being told that the legislative changes are being made to help alleviate ‘the administrative burden of paying workers in the construction industry’!