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HMRC internal manual

Employment Status Manual

Particular occupations: subcontractors in the construction industry - background to changes in 1995-96 - general

In October 1995, a joint Inland Revenue (IR)/CA leaflet (IR148/CA69) was published giving advice on the employment status of workers within the construction industry. Construction Industry representatives had asked for this guidance because they were concerned that many workers treated as self-employed were really employees.

Copies of the leaflet were sent to the majority of contractors in April 1996 - along with the bulk issue of returns requiring details of gross payments made to subcontractors (Forms 704). The leaflet and the other changes referred to within this instruction also received substantial publicity within the trade press and elsewhere.

Many contractors reviewed the employment status of their workers and started to operate PAYE and account for Class 1 (employer/employee) NICs in respect of those found to be employees. However, some contractors did not make the changes and the industry became concerned and wanted to ensure a level playing field. Those who had made the changes were being disadvantaged when competing for contracts.

Following further consultation with the industry, the IR and the CA issued a joint Press Release on 19 November 1996. This said that contractors were expected to have completed reviews of the employment status of their workers by 5 April 1997 and, where appropriate, to be accounting for PAYE and Class 1 NICs by that date. The Press Release announced that where, after 5 April 1997, contractors are found not to be accounting for PAYE and NICs in respect of payments to employees, the IR and CA will normally seek payment of arrears back to 6 April 1997. Payment will only be sought for periods before 6 April 1997 where there has been clear evidence of evasion.

In fairness to the majority of contractors who operate the rules properly, it is important that where others have failed to operate PAYE and account for Class 1 NICs action is taken to collect arrears in accordance with the paragraphs that follow. There was widespread publicity about the changes, including leaflets aimed at both workers and engagers, supported by local help and guidance from IR/CA staff. In the overwhelming majority of cases we would therefore expect contractors to have no excuse for failing to establish the correct employment status of their workers.