TT56: Sub-Contractor Tax Status

September 22, 2004

Sub-contractor or employee?
The fact that an individual may hold a CIS card does not necessarily mean that he is a subcontractor for tax purposes!

The Inland Revenue is undertaking a sweeping review of the “employment” status of various individuals working within the construction industry. If you use sub-contractors in your business, you as the contractor, not the individual concerned, are responsible for deciding on their correct employment status – whatever they tell you it is!
You could end up paying the tax!
If you incorrectly treat a person as a subcontractor when in fact they are considered an employee of your business by the Inland Revenue, you could have to pay PAYE tax and Class 1 National Insurance contributions on that individual’s earnings. Failure to do so could also result in penalties being charged by the Inland Revenue.
How to check if you have a problem
If you answer yes to any of the following statements you might have a significant problem justifying an individual’s self-employed status:

  • Does the individual sub-contractor have to do the work himself?
  • Do you tell the individual what to do, where to work and when and how to do it?
  • Does the individual use tools supplied by you (this would include a company vehicle)?
  • Do you supply the materials which the subcontractor uses?
  • Do you supply the bulk of the materials, plant and equipment needed on-site?
  • Do you pay a set rate for work by your sub-contractor on an hourly, weekly or monthly basis?

Barnes Roffe Topical Tips

  • Make sure now that you are dealing with your sub-contractors correctly.
  • Don’t ignore potential problems and allow tax liabilities and possible penalties to mount up!
  • Remember, many of these rules apply to other industries apart from the construction industry.

Topical Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Barnes Roffe LLP. If you are unsure about the implications of any idea contained therein please contact your Barnes Roffe LLP partner. Barnes Roffe LLP cannot take responsibility if the ideas are implemented without its involvement.

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