A Status Dispute with a Successful Resolution

A Guild client recently asked us to assist a contractor of theirs who was experiencing status queries from HMRC – they had been asked by HMRC to undertake a Check Employment Status for Tax (CEST) test with regard to services provided.

By way of background, the contractor in question had been providing interior design services on high-spec residential properties to the Guild client for more than 10 years. Initially, HMRC picked up the relationship via a routine Employer Compliance visit and the first line of enquiry questioned why the contractor, who operated as a personal service company (PSC), was not appearing on the client’s monthly CIS Return CIS300. After convincing the HMRC Compliance Officer, who attended the visit, that the consultant’s services did not fall within the scope of the Construction Industry Scheme (CIS), our client felt assured that this would be the end of the matter.

However, within 6 weeks the PSC received a letter from HMRC as follows:

The letter effectively developed into an IR35 enquiry with regard to the status of the working relationship. The director of the PSC was asked to conduct a CEST review, which ultimately pointed towards employment status. Following this, the HMRC officer suggested that 4 years’ PAYE assessments be calculated, based on the turnover of the business, less a 5% allowance for business expenses incurred wholly, exclusively and necessarily in the performance of employment duties.

Only after GuildHUB was asked for its opinion and became involved with the client’s accountant to defend the enquiry, was the contractor able to resist HMRC’s assessments totalling £65,000.

After reviewing the working practices of the PSC director, we were able to advise on amending both the contract and working practices as follows:

• We removed the set hours of 8am to 4:30pm, instead giving the consultant freedom to visit the properties within site hours to get the work done. The consultant was free to decide how many hours it would take to complete the work on offer.

• It was inserted into the contract that the responsibility for the work, and manner in which it was carried out, rested entirely with the contractor.

• We removed notice periods, so that either party could terminate the contract at any time.

• The client gave the consultant entire and complete responsibility for the ordering of materials and furniture, and the decision on colour schemes.

• In the contract, the client gave the consultant freedom to use a suitably-qualified and experienced substitute, chosen and engaged by the consultant. The consultant would continue to invoice the client and decide independently on the employment status of its substitute and remunerate accordingly.

• The contract also specified that any complaints regarding the consultant’s work or services provided were to be rectified at the consultant’s expense and in its own time frame without any further payment.

• All of the consultant company’s work is now covered by its own public liability and professional indemnity insurance and not by its client’s insurance alone.

• The consultant now supplies its own overalls and site clothing with its own logo, where appropriate.

• A mutuality of obligations clause has been inserted, ensuring that the client is not obliged to provide ongoing work beyond the current project and that the consultant is not obliged to accept work on an ongoing basis.

These changes made to the working practices reflect the reality of the working relationship and the contract.

The consultant now fully understands the terms of the agreement and both parties are happy with the Status Determination Statement which has been issued.

The Guild can assist your business not only with CIS matters but is also able to provide an informal opinion or guidance on any employment status matters. We can liaise with your accountants and tax advisors and offer added reassurance, so that you can devote your time and resources to what you do best.