In recent weeks, we’ve become aware HMRC are running a campaign which aims to crack down on companies who aren’t following best practice guidelines on employment status of subcontractors.
As a result, numerous businesses will have recently received a letter entitled, ‘Checking the employment status of your subcontractors.’
Have you received one of these letters? They’re commonly referred to as ‘nudge letters’ and, in this instance, are asking businesses to:
- Review the status of all of their subcontractors and;
- Decide if they’re treating their subcontractors correctly from a status point of view (for instance, stating they’re ‘self-employed’ rather than ‘employed’).
While this may seem like a minor detail, it’s a detail that can have major repercussions for businesses. Treating your subcontractors as self-employed automatically removes certain responsibilities from you and reduces your exposure to Employer’s National Insurance.
In fact, there are a huge number of factors that come into play when deciding whether or not a subcontractor falls into the self-employed or employed bracket, such as their ability to provide a substitute, provision of equipment, financial risk and integration within the business.
So, what do you do if you’ve received one of these nudge letters from HMRC?
Don’t ignore the letter, you do need to take action. Ideally, you need to be doing what we’ve described in points 1 and 2 above. If you’ve got the systems and processes in place to make these checks, then they should be relatively straightforward to carry out. But if you haven’t, then reviewing your subcontractors’ employment statuses could be more complex and time-consuming, especially if you work with a large number of subcontractors, rather than just two or three every now and then.
As with all HMRC-related activity, it’s essential that you carry out your checks correctly, in accordance with legislation. One of the most effective and hassle-free ways of ensuring your subcontractors’ statuses are all as they should be is to get them reviewed by a professional.
Not only does this mean that you can focus on doing what you do best, running your business, it gives you total peace of mind that your response to HMRC is correct and adheres to correct practice. Depending on the size of your company and how many subcontractors you work with, we can review their employment status for you and provide you with a clear, detailed report, from just £300+VAT.
When you’re busy, it can be easy for letters like the ‘Checking the employment status of your subcontractors’ letter to get put to one side. However, not taking action and responding incorrectly has consequences – potential additional tax and penalties. Don’t let yourself get exposed to these risks, not when the action that needs to be taken can easily be taken care of for you.
For more information or to talk to us about reviewing your subcontractors’ employment statuses, contact us today on 01905 777600 or email@example.com.
Anthony Middleton is responsible for monitoring all of Ormerod Rutter’s tax investigations and deals specifically with Corporation Tax and Income Tax enquiries. He has been a member of the team for 13 years.