CIS Legislation Changes - Time to bin your broken Umbrella?
12th May 2016
A recent change to legislation is one of the most important things to affect the industry this year. I founded RIFT to help the construction industry and I'm concerned that if people don't understand what's happening they could be unknowingly putting their companies. at risk.
If you work in construction as a sub-contractor and want to know how you can stop losing money from your weekly pay under these new rules, visit our RIFT Accounting website to learn about how we can help get you set up as a Ltd Company instead of using an umbrella or agency.
Did you know that using an intermediary may no longer protect you from HMRC Status Challenges?
If your construction company uses intermediaries (for example umbrellas, agencies or contracting companies) to supply and pay your workers it’s vital that you know not just that the rules governing this have changed in recent years but what you should do and when you may be liable.
Historically, using an intermediary company to engage subcontractors has always given construction companies protection against HMRC employment status challenges.
HMRC are now focussing on tightening the practices of when companies can use self-employed people. This means companies should be continually reviewing how they operate in order to stay on the right side of the rules.
What Has Changed About Self-Employment and Intermediaries?
HMRC published new guidance in April: HMRC guidance on supervision direction or control, designed to help you correctly apply agency legislation and new employment intermediaries’ travel and subsistence measures.
HMRC will challenge companies where it does not believe workers are genuinely self-employed and in some cases this may also be even if they are working through an intermediary company.
What Are The Dangers of Using an Intermediary Under The Legislation?
The downside of using an umbrella company to engage CIS and/or self-employed workers is that different legislation applies to them than if you engaged them directly.
The intermediary must show that no one has the right to “supervise, direct or control” how the individuals carry out their work. Needless to say, this is far from easy especially as HMRC assume there's control until it's proven otherwise.
Proving a lack of control means the intermediary must seek confirmation from the company and if HMRC finds that the company has provided any fraudulent information about this, the liability passes to the company.
There are also anti-avoidance provisions, which HMRC could consider applying if they can prove that a solution was used (wholly or mainly) to get around this legislation. Again, this is not easy for HMRC to prove - but it does expose the company to risk.
The last consideration is somewhat extreme and rare, but still represents a very real danger as this example shows:
Last year, a large umbrella company under investigation by HMRC had its bank accounts frozen on a Thursday. Since all the clients had paid the umbrella company already, none of the workers got paid on the Friday.
As a result, the clients had to find the money to pay all the workers directly that day.
I understand the clients all got their money back from the umbrella company, but it's not a great scenario to be in if you're the client.
The legislation is very broad and HMRC are likely to test its boundaries. One approach that we are expecting is that HMRC may ignore the use of an intermediary altogether and go to the company for any liabilities.
What is the Best Way Forward?
We believe the solution that offers the best protection is to go back to "engaging" workers directly.
To put it simply, if you are engaging the workforce directly, then you won’t be using any intermediaries, so the agency legislation does not apply and any challenge will be under employment status which is easier to consider and defend then the agency legislation.
This approach also means that there's also more scope for people being self-employed, because the focus is no longer purely on whether they're supervised, directed or controlled.
How Can RIFT Legal Help?
Your organisation and your workforce may need to adapt your ways of working to:
- stay compliant with the changes to legislation
- be confident that you could withstand an HRMC investigation into your set-up
- make sure it’s a win-win situation for you and your workers in terms of risk, costs and take home pay.
All of this becomes simpler and safer with the advice and backing of RIFT Legal Services.
We'll carry out a full audit of how you operate and engage people, and defend the case if HMRC does challenge you.
If we're unable to do so, we'll pay the liabilities to HMRC ourselves.
RIFT Legal’s expertise and experience in the construction industry mean we’re here to help you make sure that you have everything set up correctly and to fight your corner, if you do find yourself subject to an employment status investigation.
Really, if you've any questions at all, or if you want to talk to someone about your company and what this means for you then please do get in touch with me directly, visit the RIFT Legal website, or call the team on 01908 516016.