Supreme Court decision on construction industry scheme and worker status

Tue 19 Jun 2018

Two recent Supreme Court decisions have highlighted the importance of ensuring businesses using workers and contractors have properly considered the relevant tax and employment law issues.

Construction Industry Scheme (CIS)

JP Whitter (Water Well Engineers) Ltd highlights the importance of compliance with the construction industry scheme (CIS) rules in order for sub-contractors to retain gross payment status. In this case it had been contended the withdrawal would result in loss of contracts and redundancies for up to 80% of employees. HMRC do not have discretion to take into account the impact on the business of withdrawal of gross payment status when determining whether to withdraw that status for non-compliance the CIS rules.

Contractors should be aware that HMRC’s consultation on extending the requirement for non-compliant taxpayers to make security deposits to the CIS regime has closed and draft tax legislation on this and other areas will be published in due course.

Draft legislation has already been released for introducing the VAT domestic reverse charge procedure for supplies of services in the construction sector.

Worker status and employment law

The case of Pimlico Plumbers Ltd has concluded that a self-employed worker engaged by the business has workers’ rights, potentially entitling them (amongst other things) to rights to take the engaging company to the employment tribunal in respect of (i) unlawful deduction from pay; (ii) failure to pay statutory annual leave; (iii) discrimination by reference to disability.  If they have not already done so businesses using similar engagement terms should be reviewing their employment law obligations with respect to workers they engage, and their potential exposure to these types of claims.

It is important to remember that the decision is not a finding of employment for tax purposes, but the granting of employment rights to a ‘dependent’ self-employed contractor. These situations arise from the worker taking the engager to an employment tribunal rather than an investigation led by HMRC.

The issue of ‘worker’ or self-employment status in the construction industry has been discussed in a recent House of Commons briefing paper. However the recent decisions in Aslam v Uber BV and IWGB v RooFoods Ltd (t/a Deliveroo) highlight the need for all businesses to give thought to this matter. Engagers need to consider the issues around the ‘worker’ classification independently of employment status for tax.  This adds a further layer of complexity to what can already be a significant risk area.

The recent Government consultation on employment status, prompted by the Taylor review of working practices, has closed and further announcements on this area may be made with the Autumn Statement which may be in late November or early December this year.

Meanwhile the Government has proposed extending the off-payroll working rules from the public sector to the private sector. This rules currently oblige a public body employer to determine the employment status of workers they engage through intermediaries and ensure PAYE/NIC is being accounted for.  Extending these rules to private sector employers may require refinements to the employer’s engagement and PAYE compliance procedures.  As this consultation closes on 10 August and is at an early stage, the response may not be available until the Autumn Statement or shortly after.

Comment

There are a number of developments that will affect how tax is collected and levied on labour and compliance in this area is likely to be a key factor in HMRC’s assessment of the tax risk associated with a business dependent on labour. For further advice on the tax issues associated with different ways of working, please get in touch with a member of the Mazars employment tax team.