IR35 & The Construction Industry

Understanding the technicalities of the ever-changing legislation governing the self-employed can be difficult. In this article, Tim Hunt, Strategic Planning and Sales Director at Crest Plus, explores the differences and relationship between IR35, the Onshore Intermediaries Legislation, and the Construction Industry Scheme to explain why lifting blanket bans on CIS workers holds no danger for end hirers and is exactly what the sector needs.

What is IR35 & How Does it Impact CIS?

Earlier this year, IR35 reforms were introduced to tackle tax avoidance by off-payroll workers who would otherwise be employed, and taxed as such. Unfortunately, the complex nature of the legislation means that many CIS workers have inadvertently been included by end hirers when assessing IR35 status, against fears of financial risk. This is only compounding the problem of too few workers at a time when the construction industry is experiencing severe resource shortages.

The fact is, IR35 rules don’t apply to CIS workers because self-employment through CIS is governed by The Onshore Intermediaries Legislation which falls outside the scope of IR35 legislation.

CIS & The Onshore Intermediaries Legislation

Although the Onshore Intermediaries Legislation and IR35 were designed for similar purposes (i.e. to prevent tax avoidance by workers who are falsely “self-employed”), there are some key differences:

• IR35 only applies in cases where there is typically either a single person limited company (PSC) or a ‘mini-umbrella’. The only time IR35 would apply to a self-employed construction worker is if they’re operating through a PSC but certainly not as a self-employed CIS worker.
• Since there is no single-person intermediary and no legal separation between a CIS worker and their business, they are not governed by IR35 legislation, but are governed by the Onshore Intermediaries legislation of 2014.
• Under the off-payroll (IR35) reforms, end hirers from April 2021 are now responsible for determining the status of a worker operating through a single-person intermediary (i.e. their PSC) and issuing a Status Determination Statement (SDS). The end hirer now faces the liability for any underpaid tax, should that assessment be incorrect. End hirers therefore now face risks they’ve not previously experienced.
• Under the Onshore Intermediaries Legislation, however, the agency as “first intermediary” remains responsible for assessing the CIS worker’s employment status and continues to be liable for incorrect tax as it has done since 2014. Nothing has changed in this regard.
• Agency legislation prevents CIS workers being paid directly by agencies, so they must use a CIS payroll company, like Crest Plus.

In summary, CIS workers are not governed by IR35 (unless they are working through their own PSC), so the Off Payroll (IR35) reforms introduced in April 2021 do not apply to self-employed CIS workers. Recruitment agencies continue to be liable for determining status as has been the case since 2014 – not the hirer.

Engaging CIS Workers Compliantly

Under the Onshore Intermediaries Legislation, the agency must assess the employment status of the CIS worker to ensure they’re legitimately self-employed. Similar to IR35 status assessments, some of the main factors for agencies to consider are Supervision, Direction, and Control. However, there are currently no independent tools available to assess CIS status, and indeed HMRC’s own tool (CEST) has itself been successfully challenged.

At Crest Plus, to minimise risk throughout the entire supply chain, we assist all our agency clients in conducting a thorough assessment to ensure the CIS workers consider themselves to be genuinely self-employed before we agree to be their CIS payroll provider. This means recruitment agencies can work with us, safe in the knowledge that, in addition to their own checks, all compliance issues have been addressed.

Our thorough assessment process helps agencies engaging CIS workers minimise their risk by ensuring they feel confident the correct questions and appropriate right to work checks have been conducted on every individual worker.

Level-Up Your Construction Contractors

In a period of national shortages of workers and materials, many end hirers are leaving themselves at a disadvantage by turning away/blanket banning workers who could legitimately work via the Construction Industry Scheme.

CIS is a very attractive way to work for skilled self-employed construction contractors since registered CIS workers are only deducted a 20% tax payment on account from their income (instead of 30%) and can also claim tax relief on business expenses via their tax return – leaving them with higher levels of take-home pay when compared to PAYE.

If end hirers choose to reverse these blanket bans where status has not been thoroughly and specifically addressed, and then engage genuinely self-employed CIS workers with the support of an expert compliant CIS payments provider such as Crest Plus, they could level up their proposition to construction workers and end hirers alike, allowing them to retain and attract key talent and complete important projects with peace of mind that their risk has been minimised.

New to CIS?

Tim Hunt is our in-house specialist Chartered Accountant within the construction sector. Having qualified with one of the big four Chartered Accountants firms, KPMG, he has become one of the construction sector’s premier payroll and CIS experts over the last 15 years. Not only has Tim acted as a Board Member and construction sector representative for FCSA during this time, but he has also written a significant proportion of the FCSA’s CIS code of compliance as well as represented the trade body at numerous meetings with HMRC, The Treasury and Members of Parliament, having written a number papers in response to proposed HMRC Legislation changes.

Tim has already successfully assisted a number of our clients in all matters of CIS, so if you’d like him to help your team explain to your clients how professionally managed CIS solutions can be successfully applied to your genuinely skilled workers and end hirers without risk to them, then he will be very happy to help you or have an initial discussion with you or your team. To arrange a free consultancy session with Tim, contact us on 01244 684 700 or email [email protected]