As you are aware subcontractors in the construction industry operate under the Construction Industry Scheme (CIS). The scheme was introduced in the early 1970s to combat what the government thought to be widespread tax evasion by non-unionised itinerant construction workers. The older readers may recall that these workers were often referred to as “the lump”.

Under the scheme construction workers, whether operating as sole traders or through their own limited companies, are subject to tax deducted at source (usually 20%). This arrangement is specific to the construction industry. No self-employed individual or ‘one-man’ limited company in any other industry is treated in the same way. As one observer noted, it is as if construction workers “cannot be trusted to pay their own tax”. 

The IR35 rule, introduced in 2000 is aimed exclusively at ‘one-man’ limited companies. In essence, under the rule the sole director of these companies can be deemed to be an employee of the contractor, where the engagement has the characteristics of an employment. This rule was introduced primarily to combat freelance IT consultants minimising their tax by operating as a limited company even though they were really employees. This practice was particularly relevant in the banking industry where employees would cease employment on Friday and re-engage as a limited company the following Monday, to enjoy a lower rate of tax (and the banks would avoid having to pay employer’s NIC).

However, and here’s the thing, IR35 applies to all ‘one-man’ companies including those companies operating in the construction industry who are already operating under CIS. These companies therefore are subject to a strict anti-evasion measure coupled with an anti-avoidance measure. One could be forgiven for characterising the government’s action as ‘double dipping’. 

This may not have been the intention, though nowhere has the question been explicitly raised. Tax advisors have just accepted that this is another hurdle to jump. Our view is that the duality is unfair.  So we decided to bite the bullet and put a simple question to Her Majesty’s Government (well, to be fair, it was a jurisprudentially complex and somewhat legalistically phrased question, but we reproduce it here in its simplified form).  In short we asked, under the Freedom of Information Act, how many limited companies CIS subcontractors have been re-classified as employees under IR35. The reply was long and wordy, but the key sentence is “we have no dedicated records that can provide the information you seek.”  Funny that.

At Maximoor we recognise the importance of protecting our limited company clients from the tentacles of IR35. And we remain at the forefront of the fight against any unreasonable application of the rules under the IR35 provisions. We protect our clients with appropriate internal and external contractual documentation. We also advise both contractors and subcontractors of their obligations and defences. We act as both a sword and a shield. For further information please complete our enquiry form here or email us on info@maximoor.com.