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ADAS


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Can anyone tell me what the penalties are for treating an individual as a sub-contractor when it's pretty clear they should be classed as employed.

I assume the Contractor would be deemed as an employer and therefore liable for Employers NI but how far would do HMRC go back?

Thanks



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gbm


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Have they been caught?

smile

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cheapaccounting


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Read up on IR35 - have a look at the Professional Contractors group web site.



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ADAS


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Lol Nick - no, but I have a feeling it's an area I'm going to need an answer to wink.gif

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Tony

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ADAS


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cheapaccounting wrote:

Read up on IR35 - have a look at the Professional Contractors group web site.



Incidentally, it was reading your blog that got me thinking about it Elaine



-- Edited by ADAS on Tuesday 1st of February 2011 04:44:59 PM

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HendyPhilhendy


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It is different if the individual is running it through a company or as a sole trader. My understanding is that if they are using a limited company the 'employee' would become liable for any unpaid NIC, including employers.

If it is a sole trader the 'employer' is liable for the unpaid NIC.

Not sure off hand about the penalties themselves.



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ADAS


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Thanks, I was thinking in terms of CIS rather than IR35, not sure if that makes a difference

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cheapaccounting


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If CIS then they would have 20% tax deducted at source by the contractor.



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ADAS


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I think I've described the scenario badly. Think I'll have another go.

A sub-contractor is registered under CIS and is verified by a Contractor, 20% is stopped each week from his pay. However it's clear that the subcontractor would fail the self-employed test as he doesn't supply his own plant or materials, has to do the work himself, is directed by the Contractor etc - so it would be hard to argue that he isn't employed.

If discovered by HMRC what would be the penalties for the Contractor?

Thanks for the help so far.

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cheapaccounting


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Ahhh right i see now ...

Ok read here ...

http://www.hmrc.gov.uk/cis/intro/con-or-sub.htm#3

Same applies ESI - as in my blog post.

This is an area HMRC are clamping down on - so I would advise you to tell your client to pay the person as an employee not a contractor.



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Merlion ABS


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I think IR35 is for 1 man band service companies only.


I have come across this once but not CIS related just normal self employed, the HMRC went back a several years to when the person started, and recalculated all tax and NIC due from both the sole trader and the company who contracted him as if he was an employee.

As a result of this, the chap lost a lot, ie his house but the company survived.


CIS is different thought, I don't think you will find many builders/brickies etc under CIS that supply their own materials or use their own equipment except for small tools and protective clothing. They work in gangs or as you say for a contractor and can work for one or more in a year.


Has the person in question worked for other contractors or have they worked for the same one continuously?



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cheapaccounting


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CIS is an area that was being targeted by HMRC - lots of reports on it in the press at the end of last year.


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