Traditionally, the construction industry has often faced
problems with the taxman, and consequent tax liability, over
whether operatives are classed as being subbies or directly
employed.
Back in 2009, we
wrote about how, after decades of grumbling about false
self-employment in the construction industry, the Government had
decided it is time to tackle the problem head on and legislate to
make the position clearer. Three years on what has happened
to the proposals? Why have they still not materialised?
What's the scale of the problem?
According to HMRC and HMT, false self-employment occurs where
workers are treated as self-employed for the purposes of income tax
and National Insurance contributions (NICs) despite the fact that
the way in which the work is carried out on a day to day basis
demonstrates that there is an employment relationship. The number
of subcontractors working within the Construction Industry Scheme
(CIS) in 2007/8 who did not claim deductions for the cost of
materials, plant or equipment (i.e. those suspected of false
self-employment) is estimated at 300,000. The cost to the Exchequer
of the lost tax and NICs is in turn estimated to be in the region
of £350 million pounds per annum.
What was proposed?
Under the proposals, a worker would have been deemed to be
receiving employment income if the worker provides construction
services to a person whose main business involves carrying out or
commissioning construction operations unless one of three
exceptions is met:
Provision of plant and equipment - this excludes the provision
of tools which it is normal and traditional in the industry for
individuals to provide for themselves to do their job
Provision of all materials - this includes all the materials
required to complete a job
Provision of other workers - this includes responsibility for
paying those other workers (who may in turn be deemed to be
receiving employment income under the provisions)
The person paying the worker (this may be the engager, an
employment agency or an intermediary) was to be responsible for
applying the test and, if the worker was deemed to be receiving
employment income, operating pay as you earn (PAYE) and
paying employer's national insurance contributions (NICs).
The proposals are bad news particularly for specialist
contractors and small companies in the industry who often in
practice engage specialist expertise, often consisting of single
specialist operative people for commissioning, testing, design or
commercial services, who would not want to be engaged on an
employment basis.
Why have the proposals not progressed?
In Spring 2010, HM Treasury and HMRC published their
joint comments on the responses received to the 2009
consultation. The opinions of those responding to the
consultation were mixed as to the efficacy of the proposed
'deemed employment' legislative tests and the
administrative burden of the proposed legislation. The overwhelming
view from the construction industry was that the proposals as they
stood would not achieve their aims. Despite this, the Government
expressed its intention to press ahead with legislation with
improved legislative tests. However, in view of the potential
effect on the costs and flexibility of the labour market in the
construction industry, the Government decided it would wait until
the economic recovery is more firmly established in the
construction sector before introducing legislation.
So it seems that, but for the double-dip recession, the
proposals may have progressed by now. As it is, given that the
construction sector (and the economy in general) is now in a worse
state than it was in 2010, it seems likely the proposals will
remain shelved for the medium term at least.
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