You should be very careful when selecting your CIS payroll company. Payroll companies come in all shapes and sizes and there are many offering CIS services, and there are often subtle differences in how they operate which can have significant implications on the level of protection they provide. In fact, it is a requirement of HMRC that you carry out due diligence on any payroll company you are thinking of using.
A CIS payroll company should carry out all the administration required for construction contract assignments in compliance with CIS legislation
To use a CIS payroll company the contractor needs to be registered with HMRC for CIS. When a UTR (unique taxpayer reference number) has been provided the CIS payroll company will make payments for the contracted services provided, having already deducted the taxes that HMRC require (usually 20%).
An umbrella company acts as an employer to agency contractors who work under temporary contract. Usually, these contractors work through recruitment agencies, who only issue contracts to limited companies rather than individuals. At this point the umbrella company becomes the limited company that the recruitment agency contracts with. It’s complicated, and the arrangement is often described as ‘false employment’.
The biggest benefit of working with a CIS payroll company is that it should ensure your business is fully compliant with HMRC legislation, and remove the risks – and penalties – of a successful employment status challenge. It will also remit the correct amount of tax due to HMRC on your behalf.
However, the truth is that many CIS payroll companies fail to stand up to scrutiny, lack the experience to defend HMRC challenges and do not have the correct processes in place to guarantee the self-employed status of your subcontractors.
HMRC expect you to carry out a range of due diligence checks before you appoint a Payroll Company, and ignorance is no defence if you subsequently fail a status inspection. So 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. HMRC have provided guidance on the areas they expect you to investigate, download it here.
Remember, if your CIS payroll company gets anything wrong, it is you not them who will be left to pick up the bill from HMRC.
Find out how we can give you the advice, guidance and expert knowledge you need to comply fully with every aspect of CIS – while freeing up your time to develop your business, rather than trying to understand the rules and regulations.
2014 was a year of change for those who engage subcontractors. The Onshore Employment Intermediaries Legislation (OEI) came into force. Its objective is to combat the issue of bogus/false self-employment.
Intermediaries are obliged to submit details of all subcontractors, and keep a records as to why they were not engaged as PAYE, under theOnshore Employment Intermediaries reporting requirements introduced in April.
False Self Employment has arisen with the increased use of intermediaries to pay workers. Due to the flexible nature of contracts in the construction industry the use of intermediaries to pay subcontractors is common.
Many agencies have not made any attempt to comply with OEI – they have simply hidden under umbrellas.
OEI – the Onshore Employment Intermediaries legislation – is a set of tough new rules introduced in 2014 and designed to prevent false self-employment in construction.
Intermediaries now have to demonstrate to HMRC that those paid as self-employed are not supervised, controlled or directed by the intermediary, the client, or anyone else. Failure to produce the required reports will result in financial penalties.
If you want to make sure that your company is operating within the current onshore employment intermediaries legislation then the first step is to ensure that you understand what is expected of you in the first place.
Start by asking your supplier what steps it has taken to ensure compliance with OEI and how it is coping with the demands placed on it by the new rules.
Correctly paying your Tax and National Insurance are required by law and using any methods to willingly withhold these payments can mean that you are acting unlawfully. If you are unsure of what is expected of you as a subcontractor or contractor then you should always speak to a specialist to ensure that you are acting within the regulations.
It’s also prudent to have a strategy in place to protect your business in case of failure to comply with OEI now or in the future.