HMRC – Checking the employment status of your subcontractors

A number of businesses have received letters from HMRC asking for them to reconsider the employment status of their subcontractors.  More often than not the letter is issued because the same subcontractors are engaged by you each month and often over a number of years.  This may make HMRC think that they are employees rather than subcontractors to you.  The letter asks the engager to visit the www.gov.uk website and search for the “check employment status for tax (CEST) using the online tool”.

What are the areas should you be considering when checking the employment status of subcontractors?

Firstly, do you have a written contract in place which sets out the terms of the engagement for each specific task covering the following areas:

• Substitution – would you allow your subcontractor to provide a substitute to carry out the work whilst still paying the original subcontractor or is their personal service required?
• Control – Does the subcontractor have control as to the manner in which their work is completed or are they instructed as to how tasks are undertaken?
• Mutuality of obligations – Are you obligated to offer further work to the subcontractor, and if you offer such work, is the subcontractor obligated to accept it?

There are other areas that will be considered in deciding employment status, but the three stated above remain the main ones for consideration.  For an employment relationship to exist, all three of these items must be present.

If you have concerns about the employment status of subcontractors engaged by your business, or you would like to discuss the issue to give yourself peace of mind in case HMRC decide to carry out a compliance visit to your business, then please contact me.  We can visit you and run through some of the questions that HMRC are likely to ask should they visit your business.

This is an area that HMRC visit every few years but businesses are still failing to put contracts in place setting out the terms of an engagement.  Take action now before you get that knock on the door and are potentially saddled with a large tax liability for which you have not planned.