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Building Trades - Employment Status

The tax authorities (Inland Revenue and Contributions Agency) continue to attack the tax and national insurance status of subcontractors in the construction industry. They consider that many subcontractors should be employed rather than self-employed and are pushing contractors to operate PAYE and NIC instead.


In the Inland Revenue's view self-employment is generally only acceptable in circumstances such as:

 a) the subcontractor is paid by contract rather than by hour or day;

 b) the subcontractor supplies major items of plant (not just hand tools);

 c) the subcontractor has the right to supply an alternative worker;

 d) the subcontractor carries the genuine financial risk of the contract.

 e) the subcontractor has an element of control over his method of working.

Few single self-employed subcontractors can meet these conditions. Of course, this is just HMRC’S view, as the Courts have generally concentrated on d & e above together with the concept of ‘Mutuality of Obligations’. Professional help is essential in this area.

CONTRACTORS : should carefully consider placing subcontractors on PAYE where appropriate or they will be risking the Contributions Agency claiming national insurance for each worker plus interest and penalties. If in any doubt about a worker, contractors should seek a status ruling. Clearly, this is expensive bad news for contractors as workers under PAYE have greater statutory rights and employer's NIC will be payable.

SUBCONTRACTORS : not meeting the above conditions (where properly registered for tax and NIC) are unlikely to have a problem. However, once their contractor(s) changes their status to PAYE, they will be unable to claim many of the expense deductions available under self-employed tax rules. However, long term workers for a contractor may well be entitled to holiday pay, sick pay, redundancy pay and other employment rights subject to their "employment contract" in conjunction with employment law!


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