In an ideal world, your subbies would turn up in their own van, pay for their own fuel, and bring their own tools. All you’d need to pay for is the cost of their labour and any materials used on site.
In reality, it’s not always as black and white – sometimes it’s grey. And it’s in those grey areas where you can get caught out.
If they drive around in your vans and use your fuel cards, HMRC could start questioning their employment status. But if you’re having to reimburse expenses each week, you end up with more paperwork to worry about.
Why is working with subcontractors such a minefield?
Actually, it doesn’t have to be.
Who is responsible for what?
You might have been told your subbies can’t use your tools or drive your vans, but this is complete bollocks. Not only can they use your tools and vehicles, you can also issue them with fuel cards, pay for their parking, and provide PPE.
As long as you have a legitimate business reason.
That’s what it all comes down to – why are you working that way?
If HMRC ever opens an enquiry into the employment status of your subbies, they’ll be looking at the nature of your relationship. And if you’re letting subbies drive around in your vehicles while you cover all their expenses, they may see this as “evidence” that they are actually employees.
But if you have a contract detailing how you work with subbies and why – including who is responsible for which expenses – there can be no misinterpretation of employment status.
A contract also reduces the risk of waters getting muddied and sets boundaries between you and your subbies should anything go wrong.
What if you need to reimburse expenses?
Even with a clear contract, there might be times when you need to reimburse one of your subcontractors.
For example, they’ve left their fuel card at home and need to fill up the van. They put in £50 and expect you to give them £50 back to cover it.
But that’s not right.
Instead of repaying the full £50, you need to give your subcontractor £40 and keep £10 back for CIS. Ridiculous, isn’t it?
But as ridiculous as it might seem, it’s not something you want to get caught out for.
If HMRC finds out you are trying to disguise reimbursements as materials or incorrectly reporting CIS, you could find yourself subject to an enquiry.
It might start with a phone call querying your latest CIS return. Then the conversation moves on to how often your subbies use your vans and equipment. How long have they worked for you? Do they have set hours?
Before you know it, you’ve got yourself in a hole, and HMRC thinks you’re disguising employees as subcontractors.
It sounds farfetched, but it’s not. Most HMRC enquiries into employment status stem from a query into a tax issue (CIS, VAT or corporation tax).
Which expenses are subject to CIS deductions?
In 2021, HMRC redefined CIS rules to be explicit: the only thing that’s not subject to CIS deduction is materials. And materials are defined as what’s used on site.
So if you’re reimbursing your subbies for fuel, parking or anything that’s not materials, you have to deduct CIS.
The last thing you want is to get on HMRC’s radar because you’re cutting a few corners to save on paperwork.
If HMRC does decide to reclassify your subbies as employees, you’re liable for backdated tax and NIC – that’s going to cause a far bigger headache than a few extra bookkeeping duties.
How can Hardhats help?
As we said earlier, how you decide to work with your subbies is up to you – cover their costs as the main contractor or reimburse them when they submit expenses. Let them use your vans, tools and equipment or make them provide their own.
The important thing is documenting the way you work with subbies and why, so that if HMRC ever queries their employment status, you’ve covered your arse. And HardHats can take care of that for you.
We’ll create a bespoke, watertight contract documenting the true working relationship you have with your subbies so there is no confusion over employment status.
And as if that wasn’t enough, we offer an insurance-backed guarantee, which means if HMRC ever opens an enquiry, we’ll handle it for you.
Find out how it works here or, better still, book a call with us to get started.