A Guild client recently asked us to assist a contractor of theirs who was experiencing status queries from HMRC – they had been asked by HMRC to undertake a Check Employment Status for Tax (CEST) test with regard to services provided.
By way of background, the contractor in question had been providing interior design services on high-spec residential properties to the Guild client for more than 10 years. Initially, HMRC picked up the relationship via a routine Employer Compliance visit and the first line of enquiry questioned why the contractor, who operated as a personal service company (PSC), was not appearing on the client’s monthly CIS Return CIS300. After convincing the HMRC Compliance Officer, who attended the visit, that the consultant’s services did not fall within the scope of the Construction Industry Scheme (CIS), our client felt assured that this would be the end of the matter.
However, within 6 weeks the PSC received a letter from HMRC as follows:
The letter effectively developed into an IR35 enquiry with regard to the status of the working relationship. The director of the PSC was asked to conduct a CEST review, which ultimately pointed towards employment status. Following this, the HMRC officer suggested that 4 years’ PAYE assessments be calculated, based on the turnover of the business, less a 5% allowance for business expenses incurred wholly, exclusively and necessarily in the performance of employment duties.
Only after The Guild was asked for its opinion and became involved with the client’s accountant to defend the enquiry, was the contractor able to resist HMRC’s assessments totalling £65,000.
After reviewing the working practices of the PSC director, we were able to advise on amending both the contract and working practices as follows:
These changes made to the working practices reflect the reality of the working relationship and the contract.
The consultant now fully understands the terms of the agreement and both parties are happy with the Status Determination Statement which has been issued.
The Guild can assist your business not only with CIS matters but is also able to provide an informal opinion or guidance on any employment status matters. We can liaise with your accountants and tax advisors and offer added reassurance, so that you can devote your time and resources to what you do best.
If you would like to discuss anything we’ve raised in this article, please feel free to contact us at firstname.lastname@example.org or talk to our expert team at The Guild on 020 8515 2975. We’re here to help.
The content of this article is for guidance only and shall not constitute advice. Please seek independent advice or contact The Guild for information about its services.