No equipment no self-employment?

My client’s subcontractors only work for him, they all work full time, and none of them provide any of their own equipment. Does that mean that he can’t pay them under the Construction Industry Scheme?

No, not necessarily. While the provision of equipment and having multiple clients can add weight to the argument that a subcontractor is operating in business on their own account, these are only secondary factors. 

What is most important to consider is whether your client requires the subcontractors to provide the services personally; whether he retains a right of control over how the subcontractors perform the services; and whether there is mutuality of obligations between your client and the subcontractors. 

Where one of these things is missing then the law says that the engagement cannot be one of employment and is therefore reflective of a self-employed relationship. The more that can be demonstrated the stronger the relationship i.e. if the subcontractors are free from control, have the right to utilise a substitute and have no obligation to accept or undertake services then he will be in the strongest position.

We would always recommend these are confirmed in a robustly worded contract agreed by both parties, to provide the best possible defence in the event that HMRC challenge the status of the subcontractors (as a correctly written contract can be crucial to any successful defence). 

Here to help
With more than 75 highly skilled tax and funding specialists, advising on over 2,000 complex tax issues each year, we work with your practice to provide up to date, practical solutions. If you have a client in a similar situation, or have a tax question of your own, we're here to help on 0345 223 2727. Or to find out more about our services, email marketing@abbeytax.co.uk
Found in: IR35 and Status
The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.