The use of subbies in construction is not unusual – we all know that. And HMRC knows that too, which is why they are unlikely to bother you if you only work with subbies every now and then.
But when you work with your subbies long-term, HMRC starts to get a little more interested. Why? Because they want to know whether your subbies are genuinely self-employed or if you’re disguising employees as subcontractors to avoid paying tax and NI.
It’s unlikely they’ll turn up at site out of the blue to quiz you. In fact, there’s a good chance they won’t look your way at all.
But what happens if they do? How can you avoid HMRC opening an enquiry? What should you expect if they do start looking at you a little more closely? And how can you satisfy their enquiries without ending up in a courtroom?
The warning signs
The first thing to understand is that an HMRC enquiry rarely starts as an enquiry into the employment status of your subbies. It’s more likely it will start as an enquiry into your VAT return or a CIS payment.
We recently got a call from a guy who’d come under fire when he submitted a VAT refund request. He knew something wasn’t right when HMRC asked for a copy of the contract between him and a client.
Why would they need to look at contracts if the invoices were raised at the standard 20% vat rate?
We had another case where HMRC questioned one of our clients about why their subbies were using company fuel cards if they weren’t employees.
And this is how they get you.
They spot these little things while looking at your accounts and pounce on them.
It’s not that they’re out to get you (or maybe they are – the jury is still out on that one). It’s just that they want to make sure they are getting all the tax payments that are due to them. So if they spot anything that could indicate your subbies are not really subbies, they’ll jump on it.
Why you should never agree to a call
It might seem completely innocent at the time, but if you get offered a telephone conversation with HMRC, you should politely decline. Instead, ask them to submit any questions in writing.
The problem with getting on a call is that it allows HMRC to lead you into a trap. And no, we aren’t just being paranoid. It’s becoming an increasingly popular tactic by HMRC. They’ll ask you some genuine questions about your accounts and then slip in a couple of curveballs.
“How do you pay your subbies – is it by the hour?”
“Do your subcontractors use your company vehicles?”
“Did you use the CEST tool to determine the subcontractor’s employment status?”
While there’s nothing wrong with any of these things (except maybe the last one because the CEST tool is shit), your answers could be twisted around and used against you.
Because even though you know your subbies are not employees, HMRC might see it differently. If they look like an employee and act like an employee, then surely they are an employee, right?
Sometimes. But not always. And certainly not in as many cases as HMRC would like. But that doesn’t stop them from trying to catch people out.
So if you do get invited on a call, say no, and keep your eye out for the postman.
Watch out for the brown envelope
If you’ve asked HMRC for their questions in writing, that’s what you’ll get, and when that brown envelope arrives, don’t panic.
It might be full of questions and requests for evidence of this and justification of that, but this isn’t an official enquiry. This is just a fishing expedition.
HMRC want to find out whether they should be digging any further.
And do you want to know the easiest way to get them off your back?
Having a watertight contract.
“Do your subbies drive your vans?” – yes, and it’s reflected in their rates of pay as per the contract.
“Do your subbies submit timesheets?” – no, they submit site attendance records for health and safety purposes as per the contract.
It’s hard for HMRC to argue with a contract that outlines exactly how you work with your subbies and why you work that way.
When things don’t quite add up
If you have a bespoke contract, it’s very easy to shut down an enquiry before it gets off the ground. But it’s not always as straightforward as that.
Your contract has to match up with reality.
If it doesn’t, then you’ll run into problems.
That’s why off-the-shelf contracts and bastardised contracts are so risky. They don’t always reflect the way you operate.
But there is good news.
It’s actually very easy and very affordable to ensure your contract is watertight.
Let us create it for you.
All you need to do is be completely honest with us about how you work with your subbies, and we’ll do the rest.
What’s more, we’ll handle any HMRC questions or enquiries on your behalf. And if they ever do open an official enquiry, we’ll take care of that too. Plus, our contracts come with an insurance-backed guarantee, meaning if your subbies did get reclassified as employees, we’d cover any costs.
How’s that for exceptional service and complete peace of mind?
If you’re worried about any questions or queries you’ve had from HMRC, let us know. If we can help, we will. If we can’t, we’ll point you in the direction of someone who can.