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Business Tax  •  Compliance  •  HMRC  •  Personal tax

Compliance: New SDC rules and impact for construction companies

By RJP LLP on 28 June, 2016

The construction industry is continuously being scrutinised by HMRC for issues relating to employment status compliance, and new guidelines issued suggest that the situation is set to become more complicated. This currently affects construction companies and employment intermediaries using agency workers. In the future this framework may be used to decide whether a taxpayer should be subject to IR35 legislation. A consultation about this is underway and we will be reporting on the outcomes in due course.

What are the new guidelines?
In April 2016, HMRC issued new guidance on the use of a test to decide whether firms using temporary workers or contractors should pay their workers travel and subsistence expenses. This is based on whether the worker is subject to Supervision, Direction or Control (SDC) by the employment intermediary that has engaged them or another person.

When the rules are examined carefully it becomes apparent that this guidance has far reaching implications because the issue of whether a person is under supervision, direction or control can apply to many situations. As with all status issues, the onus is on the taxpayer to prove that they are not subject to the restrictions of the SDC test and this may be difficult to argue. HMRC will typically assume that the right of supervision direction and control exists unless evidence to the contrary can be provided.

This could become problematic in a wide range of contexts and companies need to be aware in situations where a supervisor or engager needs to check the quality of work completed. Under the SDC rules, this means the test applies, yet in a wide range of business situations, an individual may be providing services to another company which the client needs to check to ensure they meet the standard required. It is not really an instance of supervision, direction and control because almost no-one would pay for a job or service without wanting to complete a quality check beforehand. The same ambiguity exists when a worker is moved to complete a different job and where the job involves compliance with specific procedures and instructions.

Significance for construction industry
In the construction industry in particular, workers are subject to a wide range of site rules, moved to different jobs within a project frequently depending on what needs to be completed and almost always have their work quality checked by someone. In many instances the SDC test will legitimately apply and the workers involved would not be eligible for travel and subsistence expense reimbursement. But there are just as many instances where although these broad rules could be argued by HMRC to apply, it is justifiable to counter-argue for expenses to be paid.

The point to understand is that these guidelines can be contested and companies should be aware of their limitations. If you have any questions regarding employment status or related issues please contact Anne Eager at ae@rjp.co.uk.

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31 July 2020 - Normally an important deadline!

All taxpayers due to make self-assessment tax payments on 31 July 2020 can now delay their payment due to the disruption caused by Coronavirus. This includes self-employed taxpayers and also company directors who pay self-assessment tax on dividend income.

Read more in our coverage of Coronavirus and business support from the Government.