The recent case of Castle Construction (Chesterfield) Limited has given some hope, as well as further clarification as to how HM Revenue & Customs (HMRC) should judge self-employed status of workers in the construction industry.
Castle Construction’s main activity was as a bricklaying subcontractor, but it had also expanded into providing scaffolding, carpentry and joinery services.
The Company had permanent employees, but these were limited to:
- Office Staff
- Quantity Surveyors
- Trainee bricklayers
- Novice bricklayers needing supervision in the first two years following training
All other workers were self-employed sub-contractors.
The self-employed sub-contractors engaged by the Company were as follows:-
217 Bricklayers
12 Scaffolders
75 Labourers (both for bricklayers and scaffolders)
6 Foreman/bricklayers
2 Supervisors for the labourers
6 Fork lift drivers
1 Truck driver
2 Slinger signalmen (directing crane operators)
The fork lift drivers and the truck driver were classed as employees for PAYE purposes, given the fact that they used the Company’s equipment and were subject to a high level of control.
All the other workers were accepted as being self-employed. The main reasons behind these findings were:
- Whilst the sub-contractors work was planned in advance, there was no real control of how the work was carried out as the workers had all undergone substantial training. This was a strong argument as, in this case, even the foremen were primarily bricklayers and not on site to directly supervise the quality of work being carried out. The only inspections carried out by head office staff was in the nature of monitoring the general performance of the team as a whole and relationships between the main contractor and the foremen
- A sample of sub-contractors showed a tendency to work when it suited them and worked for other companies for periods of the year. Statistics showed that an average number of workers used were 150 per annum, although 450 were used during the year. This flexibility seemed to benefit both parties
- All sub-contractors were only paid for hours worked and were not paid if bad weather prevented them working
- The hourly rates paid to sub-contractors were higher than would have been paid to permanent employees
- A suggestion to the workers that they might need to enter into employment contracts actually resulted in many walking out in protest
- A status enquiry had been undertaken by HMRC four years previously and the workers were confirmed as self-employed
- Sub-contractors had to supply their own tools, hard hats and purchase Castle Construction high visibility vets and provide their own transport to site
- The sub-contractors considered themselves as self-employed
- Sub-contractors had to rectify bad work at their own cost
- Although sub-contractors were paid hourly it was decided that, on a large site, this was the only practical method of calculating how much work the bricklayers had done and piece work generally resulted in poorer quality work
- Sub-contractors were not entitled to attend the annual Christmas party or other ‘staff’ events
- No ‘mutuality of obligation’ exists between the Company and the sub-contractors where the Company has to pay them in the absence of work
- The intention of the parties was that the workers should be self-employed
- Sub-contracting is ‘industry practice’
This decision really benefits the larger company and a small builder may not be able to rely on these findings, especially if the majority of sub-contractors work for long periods with the builders.
However, each decision has to be decided on the precise facts of the case, but the Castle Construction decision does highlight situations which may strengthen the argument for self-employed status.
The Government has recently reported that the estimated loss of National Insurance to the Exchequer for self-employed workers, that they consider should be employees, is £2 billion a year, so we anticipate that more HMRC resources will be looking at status issues in the future and with the new HMRC penalty regime being introduced with penalties of 15% upwards, we recommend that every entity in the Construction Industry reviews the status of their self-employed sub-contractors.
If you have any questions or wish to discuss this in more detail, please speak to your usual Vantis contact or enter your details and submit the online form below.