CIS employed or self-employed?
There are sound tax reasons for contractors to engage the services of self-employed labour as opposed to employed labour. For example there are significant savings in employer’s National Insurance.
There are advantages too for the self-employed subcontractors: they are treated as a business for self-assessment purposes and can claim a wider range of allowable expenses.
For these very reasons HMRC will seek to challenge a subcontractor’s tax status if they feel that the true relationship between the contractor and sub-contractor is that of an employer and employee.
Here are the criteria that HMRC will examine, as published in their booklet “Are your workers employed or self-employed – advice for contractors.”
Common indicators of employment
• The contractor has the right to control what the worker has to do – where, when and how it is done – even if the contractor rarely uses that control.
• The worker supplies only his or her own small tools.
• The worker does not risk his or her own money and there is no possibility that he or she will suffer a financial loss.
• The worker has no business organisation, for example, a yard, stock, materials, or workers (These examples are not exhaustive.)
• The worker is paid by the hour, day, week or month.
Common indicators of self-employment
• Within an overall deadline, the worker has the right to decide how and when the work will be done.
• The worker supplies the materials, plant or heavy equipment needed for the job.
• The worker bids for a job and will bear the additional cost if the job ends up costing more than the worker’s original estimate.
• The worker has a right to hire other people who answer to him or her and are paid by him or her to do the job.
• The worker is paid an agreed amount for the job regardless of how long it takes.
To make a decision on an individual case, you will need to consider all the details, and the overall situation.
If you are unsure how to treat your sub-contractors please call for a status consultation.