HMRC fires warning shot at construction industry

Many of our construction industry clients have reported receiving a worrying letter from HMRC in the last couple of weeks. The letter concerns the employment status of construction workers, and gives the distinct impression that HMRC are on the verge of carrying out an investigation into their businesses.

Firstly, to reassure our construction sector readers, this letter is not being used by HMRC to open an employment status enquiry. We have seen several similar ‘mailshots’ from HMRC over the years – and not just within the construction industry. The giveaway is that, whilst notionally emanating from the specialist HMRC ‘Employment Status & Intermediary’ team in Newcastle, these letters are unsigned, and are clearly generic in format and nature. Most are poorly addressed (typically “Dear COMPANY DIRECTOR” in capitals) and other than obliquely indicating that you can go and look up HMRC’s leaflets if you are interested, they do not refer to any specific review that might be undertaken, HMRC’s powers, or the businesses’ rights as taxpayers – all HMRC requirements if an investigation is underway.

It appears from the letter that the target audience has been determined purely from monthly CIS returns, and there is no indication that the business has done anything wrong: merely that HMRC ‘would like you to check’ employment status within the next 30 days.

The letter goes on to explain helpfully that employment status is determined by taking “a rounded view” (whatever that may mean), and that you can use HMRC’s online tool to help you decide whether your workers should be taxed as employees.

HMRC state in the letter that if you do carry out checks and decide that a worker should have been treated as an employee, you must put them on the payroll from the next payment. There is no mention of the retrospective liability that would inevitably result in this regard, and perhaps it’s too conspiratorial to suggest that HMRC would simply need to compare the previous CIS return with the next RTI return to see who has reclassified their workers, and from there could launch an investigation and seek back taxes, employer’s NIC, interest and penalties.

Of course, it is important that construction businesses do get the employment status of their workers right. HMRC’s online employment status tool may or may not give the correct answer as it does have its deficiencies, particularly when it comes to mutuality of obligations which are so often lacking in construction worker contracts.

Those construction clients advised directly by Chartergates on employment status will have received bespoke professional advice, a definitive opinion on employment status for tax and employment law purposes, and, if drafted by us, this will be reflected clearly in their written contracts with their subcontractors. This is much better than any online tool, and perfectly sufficient for a reply to HMRC if they do follow up on this letter.

If you have received one of these letters and wish to discuss the appropriate strategy to deal with it, or you have any general concerns about employment status, please contact one of our team.