AGENCIES: Are You Managing Your Compliance Checks Correctly?

Whether your agency is new to working with the Construction Industry Scheme or has years of experience, you MUST make sure you understand your responsibilities and are acting compliantly; conducting the relevant checks with clients and workers to protect yourselves from unexpected tax liability and financial risk, states Tim Hunt, Strategic Planning and Sales Director at Crest Plus.

As an agency contracting workers via the Construction Industry Scheme, the responsibility for assessing self-employment status sits you, as the first intermediary. This means you must ensure you understand your regulatory obligations and are always acting compliantly – or you could be at risk.

We understand that for agencies both new and experienced in this way of working, getting to grips with your compliance responsibilities can be challenging – especially when you’re balancing these obligations with monitoring your Umbrella PSL and ensuring you’re compliant with IR35. But don’t worry, we’re here to help.

Here, we explain the compliance checks you should be carrying out to minimise your agency’s risk and ensure all your CIS workers are working in a way consistent with genuine self-employment, so you are able to offer a great service at a time when it’s needed most, given the scarcity of available good quality tradesmen at this time.
 

What is CIS?

The Construction Industry Scheme was introduced by the Government in 1999. It is a scheme that facilitates the collection of payments on account of tax due from self-employed workers in the construction sector. Usually, this results in contractors paying 20% tax on their income in CIS tax whilst unregistered contractors may have to pay 30% prior to updating records with HMRC.

This way of working is appealing to construction workers because where they are considered genuinely self-employed, they can maximise their take-home payments by paying less tax and national insurance and claiming tax relief on any genuine business expenses on submission of their annual Self-Assessment Tax Return.

CIS contractors will pay their own National Insurances Class II and additional Class IV National Insurance on their profits, but their monthly or weekly payments are processed through the contracting supply chain; with payments from the hirer to the agency (including the agency’s margin), the agency to CIS provider (including the provider’s small retained income), and from the CIS provider to the self-employed contractor (after deduction of the verified CIS tax as a payment on account). Each party within the contracting chain then has certain compliance responsibilities they must fulfil.

What are your compliance responsibilities?

Since 2014, CIS has been governed by the Onshore Intermediaries Legislation which was introduced to prevent tax avoidance by falsely self-employed workers. Under this act, HMRC has outlined specifications that a worker and role must meet to prove that they are legitimately self-employed. The agency, as the “first intermediary”, is responsible for assessing the CIS worker’s employment status and holds liability for any incorrect tax. Therefore, it is critical for agencies to understand how to assess workers and their roles correctly in order to meet your own due diligence obligations and to ensure CIS is indeed the correct solution for every worker you place.

For a worker to be considered legitimately self-employed under the Onshore Intermediaries Legislation:

1. They must not be subject to Supervision, Direction, or Control.
2. They must legitimately consider themselves to be self-employed.
3. The hirer must consider the role fit for self-employment.

What can you do to guarantee compliance?

As a recruitment agency working with CIS workers and payroll/CIS providers, it is important you thoroughly:

1. Perform a review with the end client to determine whether each specific role meets the criteria listed above and is therefore a role fit for self-employed contractors.
2. Implement your own in house policy setting out how you intend to make decisions on self-employment status.
3. Satisfy yourselves that your CIS provider understands the construction sector and is actually adhering to the processes, checks, and balances they claim to have in place.

The payroll/CIS provider has an important role to play for your agency. It is usually the payroll/CIS provider’s responsibility to conduct a thorough assessment of the worker’s status, making sure the workers believe themselves to be genuinely self-employed. At Crest Plus, we always carry out a strict review process to ensure that every worker receives a comprehensive assessment on each role they undertake, so we can be confident each contractor is working in the correct contracting solution.

We go the extra mile to make sure all our agencies are protected, so we’ll only place workers in a CIS role once we’ve assessed the worker and we know the agency has consulted with the hirer to confirm that the role itself is suitable for self-employment. If we disagree with any assessment conclusion made by our agency partners we will always refer back to that agency to make sure we are basing our opinions on the correct information.

Nevertheless, to ensure you are doing everything you can to make sure your workers can be placed into the most suitable solution compliantly without delay, you should be conducting a few important checks of your own.

Firstly, you will need to define your own policy for decision making around CIS status. This should include establishing a contracting rate below which self-employment is not an acceptable solution for your agency. To be clear, contracting rates above the rate are NOT necessarily meeting self-employment criteria, other tests will need to be passed as well.

You will also need to establish a list of roles that your agency consider to be High Risk roles. If a worker’s role is not on your High-Risk list and is over the minimum contracting rate, then you need to check for SDC as follows.

1) Check for evidence of SDC with hirers

The first thing to check is to ask your client whether workers are Supervised, Directed, or Controlled on any of the projects/assignments/roles undertaken for them by that worker. Specifically:

• Does the client believe they have the right to control how the work is done or the manner in which the work is done? If so, the role may be caught by SDC.
• Is their level of SDC only relating to Health & Safety and site rules or does it relate to checking that the agreed scheduled work is actually being carried out according to the initially agreed specification? If so, they may still be legitimately self-employed.
• Are there other factors that the client wants to direct, supervise or control? If so, this may mean the role is caught by the rules and not so not a suitable fit for self-employment.

You must take this review seriously by asking detailed questions and keeping a thorough record of the hirer’s responses as it can serve as proof that you’ve done your due diligence. Our account managers will be happy to advise you on the types of questions you can ask your end hirers to ensure you’ve ticked all the boxes.

Once you’ve completed this phase, it is then down to the payroll/CIS provider to interview the worker and gauge whether they believe the role is fit for self-employment. (See check #4 below).

2) Check your own documentation

Asking the right questions to determine the worker’s self-employment status becomes redundant if you don’t document the checks you’ve carried out. You need to ensure you have failsafe processes to prove that a worker is suitable to work under CIS by documenting your assessment results properly, and it is just as important to record fails.

Unfortunately, some agencies carry out all the necessary checks correctly but then discard any documentation of workers or roles that have failed the test and can’t work compliantly under CIS. Don’t make this mistake. Throwing away evidence of failed assessments eliminates proof that you’re conducting thorough and accurate checks, so if you’re ever under HMRC investigation it may seem that you’re allowing all workers to pass. So, make sure you keep proof of every assessment you undertake, irrespective of its outcome. We can help you review your assessment procedures to determine whether you’re documenting all the necessary information in a suitable way.

3) Audit your internal processes

Once you have processes in place for checking and documenting whether SDC exists or not, you should make sure that these procedures are independently checked and audited regularly to ensure they are applied properly throughout the business.

All decision-making staff should be trained in compliance processes and understand their responsibilities and liabilities. Again because of our extensive expertise in this area we can help with consultancy training if you need support explaining certain aspects of legislation and assessments to your own team/employees.

4) Check on your payroll providers

Since the payroll provider also has a hand in determining the self-employed status of a worker, you should also conduct periodic checks on your Umbrella or CIS payroll providers to ensure they’re assessing workers correctly. Any providers you work with should be compliant with a visible trade body code of conduct, such as FCSA, which is known to HMRC. Don’t leave it there though; you should also regularly review each of your PSL members to ascertain how they’re assessing workers’ self-employment statuses.

Our own thorough review process developed over 21 years ensures workers are only placed in a CIS role if we’re confident they’re legitimately self-employed and the agency has confirmed the same with the end hirer. This helps protect the entire supply chain from non-compliance and the consequential financial risk.

How can we help?

We understand there are a lot of responsibilities to meet when dealing with your contingent workforce which vary depending on a worker’s status and chosen payroll method. But don’t worry, our experts are here to help with all your compliance-related needs.

We are able to support our agency partners by assisting in educating key decision-makers and consultants on their responsibilities and how they can evidence and document their due diligence processes where required. We can give you advice on which questions you should be asking hirers and how to ensure you thoroughly document your procedures to mitigate financial risk and challenges from HMRC.

If you believe you’re doing all you can but would like some extra support, our agency support team can help you by arranging a free CIS process management health check to advise you whether you need to make any tweaks or changes to keep you safe from risk in an ever-changing sector.

Get in touch with our agency support team on 01244 684700 for help and advice.