So you’ve found yourself some reliable labour-only subcontractors, and you want to keep working with them going forward. But there’s a problem.
HMRC rules mean you can’t work with subcontractors long-term, right?
You can work with subbies for as long as you want, and there are several ways to do it. Let’s look at the pros and cons of each…
If you’ve found competent, capable, reliable subbies, then it makes sense to get them on your full-time payroll, right?
Well, not necessarily.
While there are certainly benefits to employing good people, there are some downsides. There’s more pressure on you to find enough work for everyone, and you’ll have the added obligations of paying sick pay, holiday pay, pension contributions and so on.
You’ll also be responsible for their ongoing training and any licences they need, as well as dealing with disciplinaries, performance management and all the other HR stuff that comes with having employees.
That said, you shouldn’t rule out employing your best subcontractors. You won’t have to worry about HMRC investigating their employment status. And you’ll have greater control of your workforce – you can dictate when and how they work, and move them from project to project without having to renegotiate terms each time.
Use a payroll company
If employing your subbies isn’t a route you want to go down, you can use a payroll company.
The payroll company sits between you and the subcontractor in the contractual chain. They verify your subcontractors, figure out what they should be paid, and send out payslips and CIS tax statements. This removes any future risk of HMRC saying your subcontractors should be employed.
You don’t have to do any of the admin work. All you have to do is pay the invoices so the payroll company can pay your subbies.
But there are some downsides.
As with anything, this service comes at a cost. In many cases, the cost is passed on to your subcontractor – usually around £15 per week. And although £15 doesn’t sound like much, it’s a bit crap that your subbies have to pay a fee just to get paid what they’re owed.
Of course, you could cover the fees for your subcontractors yourself, but that’s not the only cost you’ll need to bear in mind. You’ll have to pay VAT on top of your weekly wage bill and make the CIS payments upfront. And that can have a huge impact on your cashflow.
Alternatively, if you pay your subbies yourself, you can keep the CIS and VAT in your own account until it needs paying, giving you more control over your cash.
Contract for Services
And that leads us nicely to the third option – contract for services. You retain control of your payroll, keep control of your cashflow, and don’t have to chip your subbies £15 a week so they can get paid.
It’s a fantastic option if you know how to put together legal contracts.
But if you don’t know how to put together legal contracts, there is a risk of error, which could lead to HMRC challenging the employment status of your subcontractors.
You can pay for an off-the-shelf contract, but these come with some risks. Or you can pay for bespoke contracts, which can be expensive, and you’ll need to keep them up to date.
Or, the hardhats way...
The HardHats way
We've partnered up with hardhats with an solution that might just sound too good to be true!
But before we explain why it’s so good, let’s be very clear about something: this is not the best option for everyone.
If you only use subcontractors on an ad-hoc basis or you don’t want to manage your payroll in-house, this is not the option for you.
So now that’s cleared up, here’s what we offer: a self-employed subcontractor guarantee specifically for construction firms.
In other words, we take on responsibility for your subcontractors’ employment status so you can use them for as long as you want.
We’re not going to go into a huge amount of detail on how it works (you can read more about that here). But the short version is you can work with subbies for as long as you want, however you want. And you can do it without the worry that HMRC will clobber you for back taxes if they decide your subbies should be employed.
If HMRC ever does investigate you or reclassify your subbies as employees, we pay any associated costs. Essentially, you’re paying us a small fee to take on your risk.
As we’ve said, the HardHats way isn’t the right option for everyone. But if you do want to keep control of your payroll and cashflow, and want peace of mind that you’re not going to upset HMRC, let’s talk.
If you’d like to have a chat about how to work with subbies long-term and keep HMRC sweet, schedule a call with hardhats here. If we don’t think you’ll benefit from their services, they will be completely honest! Plus, They'll even help you figure out the best option for your business.
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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