Hardhatter.com | HMRC starts its crackdown on 'disguised empoyment'

Current Poll
Are you worried about the new Construction Industry Scheme?
Yes, very	39%
Yes, quite	15%
A bit	27%
Not at all	15%
What new scheme?	3%
Login to vote.

HMRC starts its crackdown on 'disguised empoyment'

by The Editor at 12:59 09/09/06 (News)

Many contractors in the construction industry, and their recruitment agencies, face uncertainty over payment terms as a result of a decision by Her Majesty's Revenue and Customs (HMRC) to discontinue a tax arrangement it had with Gabem, a composite company provider.

The action is a clear indication that HMRC is now fulfilling the Treasury's threat in paragraph 5.85 of the Budget's Red Book to crack down on what it describes as 'disguised employment through managed service company schemes'.

At issue is HMRC's refusal to renew Gabem's Construction Industry Scheme 5 (CIS5) card, and instead grant the company CIS4 status. The key difference is that CIS4 does not allow clients to make gross payments to Gabem, and increases their administration processes.

Gabem lost its appeal against the decision to withdraw gross status, when the case went before Lord Justice Moses in the High Court in July. At the time, the judge recognised that the decision would have wider effects on the construction industry as a whole.

Wider implications
Gabem is still providing information to HMRC and a hearing with the Special Commissioners is due in October. However this could indicate that HMRC is clamping down on renewals of exemption certificates in advance of the implementation of the new scheme next year.

A notice on Gabem's website said:
Business continues following court hearing on 18th July
Gabem Management Limited administers single-person limited companies (including handling tax and payroll) for more than 11,500 operatives, some 65 per cent of whom work in the construction industry. Recently, HM Revenue & Customs made a decision that would affect the way Gabem is paid by agencies. Since the decision allowed insufficient time for the company to change its IT systems and make arrangements for clients to change their own payment systems, Gabem sought a court injunction to grant relief until a legal remedy could be found. Read the outcome in the attached pdf file

Trudy Gordon MD of Gabem Management Ltd said: "Our business does not operate in a vaccuum - any decision about Gabem's situation ultimately carries implications for the whole of the industry."