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If you go to the HMRC or BusinessLink website there is an interactive tool which determines how these 'people' are employed in the eyes of HMRC.
If they work for you exclusively, use your tools and and are controlled by you, I'm sure they would be classed as "employees" and maybe come under CIS rules ?.
It's an area that is has become increasingly monitored by HMRC to increase revenue.
Its a combintation of things that determine whether someone is self-employed or an employee. I’m just getting my head around this myself but the three crucial questions seem to be;
Mutuality of obligation – are you obliged to provide work and are they obliged to take it
Control - is the worker told what to do, when and how to do it
Personal service - would you accept a suitably qualified substitute ie you do not need the workers personal services
If the answer is no to any of the above it may be that the worker is legitimately self-employed and therefore can be paid accordingly.
p.s. I might be wrong.
Employment status indicator
http://www.hmrc.gov.uk/calcs/esi.htm
Employed or self-employed?
A worker's employment status, that is whether they are employed or self-employed, is not a matter of choice. Whether someone is employed or self-employed depends upon the terms and conditions of the relevant engagement. The tax and National Insurance contributions (NICs) rules do, however, contain some special rules that apply to certain categories of worker in certain circumstances. See section on special cases.
If you work for someone else, it is important to know whether you are working for that person in an employed capacity or in a self-employed capacity as an independent contractor. If you are an engager, it is your responsibility to correctly determine the employment status of your workers.
A worker's employment status will determine the charge to tax on income from that employment or self-employment. It will also determine the class of NICs, which are to be paid.
http://www.hmrc.gov.uk/employment-status/index.htm#5
My interpretation of the HMRC rules (of which I consider there may be several permutations) is that if a person is engaged - even just one regular day per week - by the same person or firm, on a set fee, then this may be construed as employment.
I remember the advice from my account when HMRC brought in the changes. He told us that due to the regularity of our employing of our staff that it would be difficult for use to prove there wasn't an implied contract of employment and he advised (I think we had nine employees at the time) us to switch everyone to an official employment contract.
If someone is self employed, I thought they had to provide a quotation based on each project (I'm happy to be advised differently here).
Gary RK said:
i have registerd as a employer on the cis scheme,my labourers have registered as subcontractors,i deduct 20% from their wages for tax and ni,more paper work monthly returns but it covers me.they can reclaim the money back at the end of the year if they can prove they are self employed
This happens all the time with construction trades,when my company subs for a main contractor they take 20% off my labour costs but i have to reclaim it at the end of the year.
what i tend to do is increase labour costs by 20% so it doesnt affect my cashflow in these circumstances.
I also registered as a scheme for the CIS scheme to cover myself for a manic period last year.
My accountant was concerned regarding the issue of whether the person a CIS subcontractor or a PAYE employee. The previous comments regarding who's directing work and supply of tools were discussed as well as the number of hours they would work regularly over a period and payments weekly being deciding factors. He also mentioned the focus put on CIS employers by HRMC especially with respect to CIS v PAYE (so they can recover more NI contributions). We justified the CIS based on the short period.
The monthly paperwork is another piece of red tape. I also found out two days ago that even though l was submitting CIS returns, you also have to submit PAYE quarterly returns as a CIS employer, even when you have no employees.
It's so complicated and l feel unnecessary, would be simpler for short term or casual workers and sub-contractors to be self-employed invoicing each other and submitting their return at the end of the year. I feel the current scheme almost encourages cash payments.
Mike at Peak Surfacing said:
Thank you everyone for your advice. It really is a mine field. As i'm usually working on my own for 70% of the year i'm trying to work out if it is really worth all the agro. I have looked into the CIS sceme and it seems to mainly cover the construction industry. Strictly speaking my work is a bit of construction but mainly garden clearances, pruning and lawns. I do bank transfer monies into my labourers accounts and get invoices off them so that should cover me. I do my own accounts so don't have a worried accountant breathing down my neck.
Cheers
William
That is perfectly ok for garden maintenance however if they are doing landscaping of any type you should be deducting 20% CIS from there invoice..
They have to be CIS registered to this this.
Should your sub contractor not pay any tax and then go out of business the tax man will then come to you for the 20% tax that should of been decuted.
Be careful