Is using long-term subcontractors illegal?
No. No. No. No. No, and no again.
We’ve said it a thousand times, and no doubt we’ll be banging the drum for a lot more years yet: It is not illegal to use subcontractors long term.
You can work with a subbie for as long as you want – years if needs be. And you do not have to employ them, you can pay them on an hourly rate, and you absolutely do not have to use a payroll company.
Because despite what you might have heard, there are no laws around how long you can work with a subbie.
But that doesn’t mean you can simply disguise your employees as subbies to get out of paying them sick pay. And it doesn’t mean your subbies can decide they are self-employed just because it suits them.
It is your responsibility as the contractor to determine the employment status of your workers.
So if they are treated as an employee, act like an employee, and are an employee in every way except the way you pay them, then you probably should put them on your PAYE.
Because if HMRC does decide to open an enquiry and reclassify your subbies as employees, you’ll be the one paying the fines.
How to avoid the wrath of HMRC
As we’ve said above, if your subbies are employees in all but name, then you probably should employ them. After all, if you’ve found competent, capable, reliable subbies, there are advantages to having them on your full-time payroll.
But employing your best subbies doesn’t always make sense. And if there is a genuine reason for them being self-employed, then leave them as self-employed.
Because avoiding the wrath of HMRC all comes down to one simple thing: can you prove there is a legitimate business case for working with your subcontractors the way you do?
The answer has nothing to do with how long you work with them. It has nothing to do with how you pay them. And it has nothing to do with what uniform they wear, whose vans they drive or who pays for their training.
So how do you prove there is a business case for subbies being self-employed?
By documenting your relationship.
When you have a written contract between you and your subcontractors documenting how you work with them, HMRC cannot misinterpret your relationship.
It can’t really be that simple, can it?
Well, yes and no.
Yes – because it really is as straightforward as having a contract in place. After all, that’s exactly how payroll companies protect themselves from HMRC enquiries, so it stands to reason you can protect yourself that way too.
No – because creating the contract itself isn’t simple.
You can’t just hash together any old contract – if it doesn’t truly reflect the working relationship you have with your subcontractors, then there’s a possibility it could be exposed by HMRC.
So your contract needs to cover three key things:
- The commercial aspects
- Business factors
- The ‘tests’
We call this our three-factor formula, and you can read about how to implement it in our free book. There’s no catch and no bullshit. The book talks you through exactly how to put together a document that demonstrates to HMRC that your subcontractors are genuinely self-employed.
Of course, if you’d rather not spend your time learning how to write airtight contracts, you could let us take care of it for you.
The HardHats employment status guarantee
We’re so confident one of our bespoke contracts will protect you should HMRC decide to question your subcontractors’ employment status that we offer an insurance-backed guarantee.
Should HMRC ever open an enquiry, we’ll handle it on your behalf. And, if they do decide to reclassify your subbies as employees, we’ll pay any associated costs, including PAYE NICs, interest and penalties.
You can continue working with subcontractors exactly as you are now for as long as you want with complete peace of mind that you won’t upset HMRC.
Of course, you might not be at risk of enquiry at all – you might have nothing to worry about. And if that’s the case, we’ll tell you. We’re not in the business of screwing people over for the sake of a few quid a month.
But if you’re even the slightest bit concerned about whether HMRC could question the status of your subcontractors, isn’t it better to know what your options are?
All it takes is a quick call, and you can book yours here.