Working with subcontractors long-term: what you need to know
Understanding the difference between bona-fide and labour-only subbies, navigating the CIS rules, and working out whose insurance covers what is challenging enough.
Throw into the mix all the myths and misconceptions around how long you can work with subbies and how they should be paid, and it’s not surprising contractors are left confused.
Luckily, the guys at HardHats are on a mission to equip contractors with the right information and complete peace of mind they won’t upset HMRC if they work with subbies long-term.
What are the rules around working with labour-only subcontractors?
Despite what you might have heard about 13-week limits, there is no law around how long you work with your subcontractors.
It’s also entirely up to you how they are paid – by the hour, by the day, by the project – it doesn’t matter.
And they can drive your vans, wear your uniforms and use your equipment.
What matters is why you have the working relationship you do. Is there a legitimate business reason for working with your subbies that way?
What about IR35?
IR35 is an anti-tax avoidance legislation used to combat subcontractors who disguise themselves as limited companies but are really masked employees. If your subcontractors are sole traders, IR35 does not apply.
As long as you can justify the working relationship you have with your subbies, you can work with them however you like for as long as you like.
So how do you keep HMRC happy?
Although there are no rules around how long you work with subcontractors, it is your responsibility as a contractor to determine their employment status. You can’t agree to them being self-employed simply because they want to be self-employed.
If HMRC does decide they should be reclassified as employees, it’s you who will be liable for paying backdated PAYE NICs and interest as well as any fines or penalties.
So what exactly are your options for working with subbies long-term?
- Risk it – it’s definitely not an option we’d recommend, but it is an option, nonetheless. After all, there’s a chance you’ll never be on HMRC’s radar. Just be prepared to take a substantial financial hit if you ever do get caught out.
- Employ your best subbies – if you’ve got the work and your subbies are good, why not put them on the payroll permanently? That way, HMRC can never misinterpret your working relationship.
- Use a payroll company – a common solution. Remove all the risk by putting a payroll company between you and your subbies. It will mean subbies have to pay a fee to get paid, and it could impact your cash flow, but at least you’re protected.
- Contract of services – create a comprehensive contract between you and your subcontractors, outlining the terms of your working relationship. This allows you to retain control of your payroll and cash flow, but you’ll need to ensure it’s watertight. Any errors could lead to HMRC challenging the employment status of your subcontractors.
- Work with HardHats – they offer an insurance-backed employment status guarantee. In other words, they take on responsibility for your subcontractors’ employment status so you can use them for as long as you want.
The HardHats way
Ever wondered how payroll companies are able to pay subbies long-term without upsetting HMRC?
It all comes down to the contract they have in place between them and your subcontractors.
And if payroll companies can have a contract that protects them, why can’t you?
Well, the good news is you can.
HardHats has taken the model payroll companies use and made it accessible to contractors who want to retain control of their payroll and remain compliant.
A HardHats contract is bespoke to your business, outlining exactly how you work with your subcontractors and why.
By documenting the working relationship with your subbies, there can be no misinterpretation of their employment status should HMRC ever open an enquiry.
Plus, all HardHats contracts are insurance-backed. This means that if HMRC does open an enquiry, HardHats will handle it on your behalf. And if your subbies are ever reclassified as employees, HardHats will cover all associated costs.
So, if you do want to work with self-employed subcontractors long-term, keep control of your payroll, and stay compliant, you should have a chat with HardHats.
They’ll be completely honest about whether they can help you or whether there’s a more suitable option.
You can get in touch with HardHats here or request a copy of their free book – How to use subcontractors long-term and keep HMRC happy without using a payroll company.
Frequently asked questions
This article has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
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