From 6 April 2007 HM Revenue and Customer (HMRC) introduced a revised and stricter regime for subcontractors in the building industry. This affects the vast majority of workers and employers in the industry. The main changes are shown below.

Verification

All new subcontractors must be 'verified' with HMRC by the main contractor. This can be completed online or by telephone. Pre-existing subcontractors do not need to be verified and all current contractors should have been sent a list of their subcontractors who do not need verification.

Payment

The verification process determines whether the subcontractor will be paid gross or net after a deduction of tax at a rate to be set by HMRC.

Monthly returns

Main contractors are required to submit a monthly return of payments made to subcontractors, with fines for late or non-submission. The monthly return also requires the contractor to confirm that none of the subcontractors are, or should be, employees - this is known as a 'status declaration'. Nil returns must still be made even if no payments are made in the month.  - PENALTIES ARE IMPOSED if these conditions and returns are not met by the monthly deadlines. Current subcontractors

Employment Status

This is the big change in the new system. Basically, the rules to determine whether an individual is an employee or a subcontractor have not changed. What HAS changed is the requirement for the main contractor to confirm that they have determined the correct status for each subcontractor. You can carry out a status check at www.hmrc.gov.uk by clicking on this sentence.

This is an online facility where the contractor will key in the main features of the contract to determine the employment status of the individual.

If it is determined the person is an employee rather than a subcontractor, this will mean extra costs for the main contractor in terms of employer's National Insurance, contracts of employment and possible sick and holiday pay entitlement.

If you need any help on implementing these new rules in your business, please give us a call here at Nolan James!