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2016: The Year of Compliance

David Jackson | 13th January 2016

There’s no doubt about it – compliance of statutory regulations is 2016’s key requirement for those of us who provide contract and payroll services to the construction sector.   

For some, there will be new legislation. Others will have to face up to the consequences of non-compliance with recent legislation. And for those who have made the wrong decisions, financial penalties lie ahead.

And for Hudson Contract?  Compliance is our key strength, and unique selling point. It always has been, from the day I founded the business, almost twenty years ago. 

Ever since we won the first of our many challenges in employment and tax law – and with a whole range of subsequent case law judgements in our favour – there has been no other service provider that can genuinely match our undertaking to eliminate the risk of status challenge by HMRC. 

Compliance under the 2014 Onshore Employment Intermediaries (OEI) regulations has been a fresh challenge – and one that we have met in full.   We have demonstrated the extent of our compliance, backed by layers of expert opinion, to HMRC without adverse comment.

Hudson Contract stands alone

Quite simply, our investment and commitment to full compliance, leads me to conclude (with apologies to Brian Clough) that whilst we may be in a field of many service providers, Hudson Contract is in a class of one.

Looking ahead?

Those who provide services under an umbrella provision are in for a new raft of regulations that will see the tax-free payment of travel and expenses removed.   And not before time:  for many years, those who are contracted and paid by umbrella services have been mystified and angered by the many deductions and strange calculations that shroud their negotiated pay.

It's odds-on, that when the new tax year begins, umbrella providers will no longer be able to allocate as much as 40% of earnings to tax-free travel and subsistence.  It’s a practice that masks the subsequent deduction of both Employers and Employees National Insurance contributions from a reduced taxable gross pay.  Bear in mind this has applied to all business sectors serviced by umbrellas, not just construction, it is small wonder the government has turned its attention to shutting down this abuse.  From the perspective of our industry, however, the question is:  Will construction companies stand the increased cost of labour, or look for a better service provider?

This year is also going to see sham contracts take centre stage

It’s easy to spot misrepresentation on the websites of many service providers whose contracts simply do not reflect the reality in the workplace.  If the contracts seek to describe actions that don’t exist, they are a sham. It really is that simple. Equally, construction firms that buy from these peddlers of sham contracts will only have themselves to blame when the consequences come back to bite them.

To give you just one example, in November 2015, Hudson Contract encountered a payroll company that provided sham contracts. It has since been wound up. But not before it disappeared with a week’s payroll stolen from their clients. We await the creditors’ report in due course, but almost certainly, the biggest creditor will be HMRC with a huge sum in CIS tax and VAT outstanding.   Will they will look to the same clients – who have already been the victim of crime – to recover their losses, citing lack of due diligence?

On which point, it’s worth reminding everyone that even when contracts are provided by advisors with the best of intentions, it is the construction firms rather than the ‘experts’ whose necks are on the block when those same contracts and the self-employed status is challenged...

I have seen correspondence from HMRC at the most senior level, stating their intent, resources and actions will be brought to bear on those who seek to disguise an employment relationship as self-employment. Stand by for sham contracts to be identified and challenged.

For me, there are three key questions:

  1. Will payroll service providers stick around to face the scrutiny when their sham contracts are challenged? 
  2. Or will they take the money and run?   
  3. And will HMRC stand the loss, or deem those who have paid for sham contracts are liable for employment taxes?" 

I think I know the answers to all three questions. Time will tell...

 

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