Workmates discusses construction industry schemes

Either the provider is not paying workers the Minimum Wage which is a criminal offence, or they are already paying more than the NMW.

Alternatively, they could be already charging so much that they can afford to cover the extra cost out of their profit.

The new NMW is GBP5.93/hr, when you add holiday and Employers NI this amounts to a cost of GBP7.27/hr.

Contractors might find that choosing the cheapest supplier costs them more in the long run.

Matt Boddington of Accountax said: "Many cowboy agencies are falling foul of MSC legislation and exposing their clients to potential risk which could run to millions according to Boddington.

Contractors face risk under Managed Service Companies legislation.

"Any contractor whose workers are ultimately engaged by a company falling foul of the vague definition under this legislation is potentially exposed to a bill for PAYE and NIC on those workers - even if those workers were paid by somebody else".

"Main contractors are beginning to recognise the risks and have been approaching us to carry out thorough vetting of their supply chain".

Introduced in April 2007, this relatively recent and heavily criticised piece of tax legislation is now starting to bite in the construction industry, as many companies are being tackled by HMRC.

Two HMRC specialist units have been set up specifically to target the industry with this new legislation.

The construction industry has evolved enormously over the past 10 years and there are now a multitude of types of business operating.

The terminology used to describe these businesses is often inadequate or misleading - from 'payroll companies' to 'composite companies', some just call themselves 'schemes' and leave it at that.

It may be tempting for contractors to fall into the trap of thinking that the compliance or otherwise of these companies is not an issue for contractors.

The Construction Industry Scheme contains a plethora of penalties for non-compliance, and the latent threat of removal of gross payment status for any infraction within the previous 12 months.

Some of the various types of new business operating within the construction industry are designed to operate on the very margins of the CIS scheme, or inadvertently blur the line between subcontractor and payroll agency, which causes doubt and difficulty for contractors and agencies.

HMRC has publicly warned the construction industry that some companies are on the wrong side of the contractor/nominee line - the consequences of getting this wrong will mean liability and penalties.

There are many tax avoidance schemes on the market involving offshore tax planning.

Not all of them are robust, as the taxpayer in the recent Huitson v HMRC case discovered to his considerable financial detriment (to the tune of around GBP100,000).

There are reportedly 2,500 other self-employed contractors affected by this judgment.

Often such schemes rely on the lack of a UK trading presence, meaning that if they fail HMRC will be looking to determine the source of payments from the UK.

The now infamous tax rules on workers operating through limited companies have lead to a string of employment tribunal claims against end-user clients on the basis that workers who pay tax like an employee may as well claim the rights of an employee.

As contractors are the ones controlling sites they are deemed to be the client under IR35 and are thus the target for claims.

HMRC has announced a new enforcement team and new powers and sanctions for the non-compliant.

A consultation has also recently been issued by HMRC concerning schemes using travel and subsistence payments to reduce income below NMW.

As many umbrella companies currently operating rely on high levels of expenses to achieve tax savings it is becoming apparent that some are overstepping the mark and compliance problems are inevitable.

As cases are reported and publicly available, contractors are unlikely to want their name associated with a prosecution for payment below NMW where one of their site workers is involved.

Philip Andrews, managing director of Workmates and member of the Construction Executive at the Recruitment and Employment Confederation, commented: "We are fully conversant and compliant with the MSC and the NWM legislation".

"I do sometimes feel that we are the only company that is, but part of our job is to protect our clients by acting responsibly".

"We have been around for 23 years for a reason - we make sure that we follow legislation, it gives our clients the peace of mind they deserve".