Tax assualt on self employed construction
19I08I09
Tax assualt on self employed construction
workers
Ioan Prydderch
As if things weren’t bad
enough already for the Construction Industry with the current
market conditions, the Government has recently launched its
consultation on ‘False self-employment in construction: taxation of
workers’.
This will be of
particular interest to small to medium size construction firms who
engage a largely flexible and ‘self-employed’ workforce.
The Government’s
intention to tackle the issue of false self-employment in
construction was one they highlighted back in the March
budget. The current consultation process is to seek comments
from workers, and those who engage, them on how best to deal
with the perceived problem of workers claiming to be
‘self-employed’ when they are actually ‘employees’.
So, what is the problem
and how does the Government propose addressing it?
The Government is
concerned that there is a disproportionately high number of
self-employed workers in the construction sector. They
believe there are two clear reasons for this:
- Tax and NIC liabilities are considerably
reduced if a worker can be classed as self-employed. If a
worker is self-employed, the engager saves on NIC contributions and
the worker’s liability to tax is linked to his net profits, which
is more favourable than liability to income tax.
- If the worker is not ‘an employee’ the
engager is not required to comply with employment
legislation. Workers can lose out on valuable employment
rights such as sick pay, pension contributions, state benefits and
protection from unfair dismissal, but most seem happy to accept the
tax liability advantages of being self-employed.
The Government claims
that the net result of this industry practice is that the Exchequer
is losing out to the tune of £350 million.
The Government further
claims that despite efforts to engage with the industry, on an
informal basis, things have failed to improve.
Proposals to tackle the
problem include:
- Introducing statutory criteria specifically for the
construction industry to test whether a worker is or is not
self-employed.
- Any income received by a worker will be ‘deemed’ employment
income unless the worker can show, by reference to those criteria,
that it is not.
- The criteria will consider three points; provision of plant and
equipment; provision of materials; and provision of other
workers.
The consultation is due to close on 12th
October 2009.
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For more information contact:
Contact
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Ioan Prydderch
Partner, Head of Construction, Energy and Projects
E ioan.prydderch@hughjames.com
T 029 2039 1127