FAQs – The Correct Decision?
Q. What should I look for in a CIS payroll provider?
Our Contracts Director Ian Anfield spells out what HMRC expects you to do before you choose your provider.
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A. HMRC expects you to carry out a range of due diligence checks before you appoint a labour service provider. It’s essential to ask any CIS intermediary or umbrella company you’re thinking of using to supply you with a detailed explanation of how their business model works, and explain the legal framework or case law they operate under. You’ll also need sample contracts. In HMRC’s eyes, if anything goes wrong, you are liable, rather than the provider. Make sure you know exactly what’s expected of you by following HMRC’s leaflet, which you can see here. If someone’s offering you a cheap deal, remember the old saying: ‘penny wise, pound foolish’
Q.Why are the contracts so important?
Watch Ian explain how the contracts work – and why Hudson Contract is uniquely able to deliver the protection you need.
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A. With Hudson Contract, there are two sets of contracts. The first is between you and us and specifies that we are responsible in tax and employment law. Operatives sign separate individual contracts with Hudson Contract to establish they are legitimately self-employed. Case law is required because the idea that you can save tax by simply passing money through a third party is unrealistic. The third party has to have proven that their contracts stand up to legal scrutiny, and that they do actually take on the liabilities as declared in the contracts. Hudson Contract is the only provider with case law in its name.
Q. What about CIS providers who say they are accepted by HMRC so they don’t need case law?
Ian explains how everything is often fine – until the contract is challenged…
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A. This sounds too good to be true. And it is! Many companies pop up with these sorts of claims, take your money, the VAT and the CIS deductions, and when challenged by HMRC disappear leaving you with unpaid wages and a big tax bill. Hudson Contract’s case law allows us to guarantee this will not happen to our clients. If our contract is challenged, we defend it – and pick up all the associated costs.
Q. I have a contract of services from my accountant. Surely that means my tax and employment liabilities are zero?
Richard Crisp, Hudson Contract Sales Director explains why you might be not be properly protected.
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A. Accountants act with the best of intentions, but unless they are prepared to give you a guaranteed indemnity, underwriting the financial consequences should the contract fail an HMRC status investigation or employment tribunal challenge, you’re on your own. With huge fines being levied against contractors whose CIS contracts disintegrate under the slightest pressure, why would you want to take a risk that can be completely eliminated by Hudson Contract?
Q. Why is VAT payable on the Hudson Contract service?
Ian says there’s a simple explanation – and that alarm bells should ring if an intermediary or payroll company says there’s no VAT to pay.
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A. The turnover test for VAT registration is so low that any legitimate intermediary or payroll company will be registered. Once registered, companies have to charge VAT on all money that changes hands. Liability for any failure to charge or pay VAT will be down to you.
Q. Am I liable if my service provider doesn’t pay the VAT?
Yes. Find out from Richard about the essential phone call you need to make.
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A. HMRC reserves the right to recover lost VAT from you. False collection of VAT is such a big problem that HMRC has a helpline, and when doing business with another company for the first time, it pays to run a quick check with the Revenue to ensure the company is actually registered. With Hudson Contract you can rest assured the VAT is always paid on time.
Q. What other checks should I make before selecting a service provider?
Hudson Contract would like to give you our free Information Guide which details the essential checks. Ian explains how it will help you stay on the right side of HMRC regulations
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A. You can learn a lot from a simple credit check. If a company is worth less than your weekly payroll and you pay upfront, the risk is obvious. Look at the filed accounts. If there aren’t any, walk away. We’ve written a guide to the CIS checks HMRC expects from you. Call us on 0845 643 5289 for a copy free and without obligation. Or fill in this form.
Q. What about companies that offer the service for free or with a cashback?
Is there a catch? Ian gives you the low-down…
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A. At the end of the day no company can work for free, so the cost has to come from somewhere – and a ‘special offer’ like this usually means the operatives are paying. To charge the operative and then give you some of that money back seems – quite frankly – underhand, and when the subbies find out, you’re making trouble for yourself. Moreover, if you only pay an intermediary for the cost of labour you’ll have to pay a 1.5% CITB levy, so in reality you could end up paying the fee twice, once through the operative and once via the levy. Another thing: operatives can’t recover the VAT, but you can. Hudson Contract charges the client rather than the operative for a number of complex legal reasons which we would be happy to discuss with you on a one to one basis. If you negotiate the fee to come from the operatives, you can always deduct it from their gross pay. This way they do not pay VAT or CIS on the deduction, and we still charge you to keep things simple and straightforward.
