Is your construction workforce tax compliant?

Advice Centre

Following earlier consultations, the government is now in the process of publishing a consultation that seeks to regulate and tackle non-compliance in umbrella companies relating to both tax and employment rights.

How important is it for my construction workforce to be tax compliant?

If you engage workers that have been sourced through an agency, it can be tempting to dismiss any questions relating to tax compliance. You might assume that if an agency is supplying you with workers, they must be on top of any legislation, but sadly, that might not be the case.

It’s your responsibility to ensure your construction workforce is tax compliant.

The ongoing government consultation aims to find out different opinions on the proposals to tackle non-compliance. With this consultation, the government hopes to move closer to achieving its 3 main objectives for the umbrella company market: delivering improved outcomes for workers, supporting a level playing field in the umbrella company market, and to protect taxpayers from the issues that currently happen due to non-compliance.

As a business owner, you’ll have a vested interest in this consultation, so it’s worth making sure you understand what’s happening before the consultation closes on 29th August 2023. 

What are the risks of NOT being tax compliant? 

In the 2023 Budget, the government made it clear that they were looking at “tougher consequences for promoters of tax avoidance”.

Chapter 4 of the initial consultation suggests that a mandatory due diligence process may be introduced, with penalties for businesses or end clients that don’t comply. Another option is that HMRC could be given the power to collect umbrella company debt from elsewhere in the labour supply chain. This could mean that you become liable for an umbrella company’s lack of compliance.

Will HMRC really come after me for not being tax compliant?

Ultimately, yes, there is a potential that HMRC could target your business if you are not ensuring that your supply chain and business is tax compliant.

Key considerations for tax compliance in the construction workforce

Generally, whether you’re a worker, contractor, or end client, if something seems too good to be true, it probably is. While you might not be aware that you’re involved in a tax avoidance scheme, that doesn’t mean you can stick your head in the sand.

The more you understand about tax compliance in the industry, the better.

The Construction Industry Scheme (CIS)

CIS in construction stands for the Construction Industry Scheme. If you’re a contractor, you’ll have registered for CIS, and you’ll know that CIS aims to simplify payment of tax and national insurance (NI). Effectively, CIS sets aside pay for income tax, NI, and any other deductions, and makes it easier for contractors to pay subcontractors by avoiding any potential mistakes.

If you’re registered for CIS, you’ll have 20% of your earnings deducted from payments. If you’re not registered, you’ll have 30% deducted.

Understanding if you’re a contractor or subcontractor within CIS

Under the CIS scheme, the terms ‘contractor’ and ‘subcontractor’ have slightly different meanings:

  • A contractor is a business that pays subcontractors to carry out construction work. Often, a contractor within construction is referred to as a ‘client’. 
  • As a subcontractor, you are paid by contractors or ‘clients’ to carry out construction work.

If you are a business that pays other businesses to carry out construction work, but you are also paid by other businesses, you must act as either a contractor or subcontractor depending on the specific circumstance.

Recruitment agencies, for example, should register as contractors and subcontractors.

Work covered by CIS

All construction work in the UK is covered by CIS, including site preparation, alterations, dismantling, construction, repairs, decorating, and demolition.

Defining umbrella companies

Umbrella companies are often used by recruitment agencies to pay temporary workers. While it’s the recruitment agency itself that finds you work, it’s the umbrella company that employs you and pays your wages through PAYE.

Shouldn’t the recruitment company I use do this for me?

While it would be lovely to think that whatever recruitment company you use will be on top of any tax legislation, unfortunately, you can’t assume compliance.

A lot of construction recruitment companies are not fully tax compliant

Without performing due diligence on the recruitment company you engage, you’re risking the reputation of your business. In a previous article we’ve dug deeper into why compliance is so important in construction recruitment, and with the current government consultation, it’s vital that you step up your game when it comes to understanding your tax responsibilities.

Low margins are driving poor compliance in recruitment

The never ending competition to offer low cost solutions has inadvertently created a situation where compliance procedures are being left behind. When the focus is on sourcing and securing work, low prices are often the carrot that leads the donkey astray. While good value is always going to be a priority, in the current climate, cutting costs can often mean a company has cut corners.

Strategies to ensure tax compliance in your construction workforce

While the consultation is ongoing, now is an ideal time to implement strategies that will ensure your construction workforce is, and remains, tax compliant.

Properly documenting worker classification

You should know how your workers are paid and who is operating PAYE on the earnings of workers. Without knowing this information you may find that no one is paying the tax or National Insurance contributions for your workers. If that’s the case, HMRC can ask you to account for those payments. 

You must determine whether workers in your supply chain are within IR35, and know the implications if they are within, or outside of the IR35 rules.

Implementing accurate payroll systems and record keeping

When you engage your workers, you need to know how they are classified, and you need to make sure your workers are informed too. At P.I.E.R we make sure every worker has an email that details their next assignment, the umbrella companies on our PSL, and a link to view all of our payroll providers so that workers can make an informed choice as to which payroll provider they would like to use.

Regularly reviewing and updating tax policies and procedures

Keep on top of changing policies, and set alerts so that you’re made aware of any changes. At P.I.E.R, we aim to keep all of our clients and workers up to date with new legislation, but if you ever have questions, feel free to reach out for advice.

With almost 3 decades of experience in construction, we can do the hard work for you. Contact P.I.E.R for advice, guidance, and to ensure your construction workforce is top notch.

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