1 Employment status

A key question from HM Revenue & Customs (HMRC) in recent times is "have you got the status of your workers right?" HMRC has the powers to impose full recovery of PAYE/NIC where it deems an individual's employment status has been incorrectly categorised.

As it is the responsibility of the engager to ensure that the employment status for tax purposes of each worker is correct, it is the client who suffers the liability with the prospect of interest and penalties as well. There is no quick contractual solution to determining employment status: as most people know, this is more about the substance of the relationship between engager and worker, rather than the contractual terms themselves which recent case law has shown can be disregarded if ineffectual.

However, the contract is a good place to start and serious consideration as to the implications of the wording should be given, combined with validating contractual terms against what happens in practice.

2 Gross payment status

Changes from 6 April 2007 were introduced to ensure greater compliance with reporting obligations.

It is now into the second tax year of the 'new CIS', and HMRC is once again driving home the issues surrounding this and introducing random compliance tests to check companies' ongoing qualification for gross payment status.

Failure to comply could lead to companies being reclassified for net payment.

Companies may not actually be made aware that they are being checked. However, in carrying out this process, the key factor in determining whether or not HMRC will let companies retain their gross payment status is the compliance history from the date of the review going back to the previous 12 months.

In the likely event that companies, who have not been complying will have their gross payment status withdrawn, they will have 90 days within which to appeal.

What can companies do?

A challenge by HMRC on either of the above issues could prove costly to companies, both financially and in terms of reputation.

It would also be a distraction for business and for the personnel tied up dealing with HMRC's enquiries.

PricewaterhouseCoopers has considerable experience helping companies review their systems and procedures to preserve (or obtain) gross payment status and to ensure the employment status of workers is correctly determined.

If you are a company already undergoing an HMRC review, PricewaterhouseCoopers has the expertise to help you manage the process and reach the best possible settlement.

For further information, contact Peter Gomersall, human resource services, PricewaterhouseCoopers LLP in Leeds on 0113 289 4267 or peter.c.gomersall@uk.pwc.com

Peter Gomersall, human resource services, PricewaterhouseCoopers LLP in Leeds