How to Reduce a £762,000 Tax Bill to ZERO
As the government looks at every means possible to reduce the staggering debts the country now has, it has targeted construction companies as a potential opportunity to generate some much needed revenue.
And whilst we accept that there is nothing certain in life other than death and taxes, we should all be concerned that the tax man may come knocking and present you with a bill for unpaid taxes - because he questions whether the employment status of your subcontractors is one of genuine self employment or disguised employment. If this situation arises what do you do?
Some would accept the punishment. After all, it is the tax man and surely what he says goes. Others would turn to their accountants for expensive tax advice.
But when it happened to one long established firm which builds conservatories who were presented with a bill for £762,000 plus interest plus penalties, they turned to ConstructPRO's solutions partner for specialist construction related tax advice.
You see, Douglas Seaton was on the working party that developed the current Construction Industry Scheme when he worked for Her Majesty's Revenue and Customs, so he knows a thing or two about the legislation.
He was an Inland Revenue inspector, so he knows how they work when they are undertaking an investigation, what they are likely to ask and what they are really looking for. He knows what they're entitled to, but also what they're not entitled to.
So, when Douglas got his hands on the documentation supporting the investigation, which concluded that the 4 subcontractors being used by the company were not genuinely self employed but should always have been regarded as employees of the company, he quickly began dissecting the tax man's case.
Based on his extensive knowledge and experience and his ability to demonstrate glaring holes in the documentation being offered by HMRC, Douglas was able to successfully argue that the employment status of the subcontractors was in fact correct and that they were genuinely self employed.
Douglas explained, "The biggest problem was the fact that several interviews had taken place so I went about dismantling their content. One such interview lasted an hour yet the notes were only one A4 page long and half of that was taken up with rhetoric from the Inspector."
He continued, "I queried everything and re-interviewed everyone presenting a far more in-depth Employment Status review which categorically showed that the case was not justified. We were delighted to see HMRC reduce their formal Determinations and Decisions totalling £762,000 plus interest plus penalties to NIL."
The employment status of subcontractors has always been a key concern facing construction companies, however, with increasing pressure on the tax man to bolster its coffers, we expect a rise in the number of inspections over the coming months and years.
If they determine that the Employment Status of your sub contractors is not justifiable, they will come looking for you to pay the tax lost plus the employee National Insurance and 12.8% employers NI contributions on all of the associated employees - for the current and previous 6 years.
For example, if you pay one operative £20,000 per year, HMRC will be looking for tax and National Insurance lost of approximately £9,150. If you have 10 operatives, that's £91,500. That's for one year, HMRC can go back 6 years, so all of a sudden you owe them, £549,000...PLUS interest...PLUS penalties.
But do not wait until the tax man comes knocking before you take action. There are proactive steps you can take to survive a tax inspection.
As part of our Contractor Support mandate we can help. In much the same way as you would use a Risk Assessment, ConstructPRO will assess your business and provide you with a safe system of Employment Tax, click here for more details.
For more information or an informal chat please get in touch today. Alternatively click here to request a call back.
