HMRC has introduced an online employment status indicator tool for plumbing and other construction companies who engage, and make payments to, sub-contractors on a self-employed basis.

The Check Employment Status for Tax tool (CEST) claims to allow companies to see whether an operative should be classed as employed or self-employed, with a view to moving them from CIS (construction industry scheme) to PAYE for tax purposes.

Ian Anfield, Managing Director of CIS workplace audit and contract solutions provider, Hudson Contract, said about the tool: “HMRC is targeting thousands of firms, which it knows regularly reports CIS payments for the same subcontractors. It hopes that some of these firms will find, after using the tool, that the subcontractors should actually be employed and will encourage them to take appropriate action moving them from CIS to PAYE.

“The financial consequences of failing CEST could be absolutely disastrous and a construction company with only a handful of subbies could be destroyed. A small error could result in firms finding themselves facing a huge bill for unpaid tax and National Insurance contributions. It could also result in CIS subbies being permanently reclassified as employees.”

Ian explained that a recurring issue he has seen is that many firms in the plumbing industry find tax and employment law tough to understand and, when there are rigorous HMRC due diligence obligations to contend with, CIS can be a minefield.

“These changes, coupled with the Supreme Court’s recent ruling that workplace tribunal fees are unlawful, are daunting for construction firms. Firms now run the risk of facing an ongoing torrent of costly, stressful and often-bogus attempts to win an employment tribunal pay out, as well as being in danger of falling foul of HMRC status risks,” he said.