The Treasury is proposing plans to tackle what it calls “false self-employment”, which could land the construction industry with a bill of up to £350 million through an increased cost of labour.
HM Revenue & Customs believes up to 400,000 site workers are registered as self-employed when they should be employees, saving both the contractor and the worker thousands of pounds in tax and national insurance contributions.
The Treasury is proposing all construction workers be deemed employees and be subject to PAYE taxation unless they supply their own materials, provide a substantial amount of plant, or are providing other people’s labour as well as their own.
Nick Bustin, senior manager for employment tax services at accountancy firm Mazars, said: “The proposal includes a test specific to the Construction Industry whereby workers who provide, for example, their own heavy equipment, materials and other workers will be treated as self-employed. This will establish a distinct industry-based test which does not apply in any other sector. Similar proposals have been considered in the past and not implemented, so it is unclear why they are considered a viable option now.”
The plans were announced in the chancellor’s last Budget to tackle the issue and a consultation paper has now been officially launched.
Treasury bosses say false self-employment costs the Exchequer £350m per annum because of less tax and NI being paid.
The consultation documents say a possible effect of the proposals is an increase in the cost of labour to construction firms, resulting in either an increase in pre-tax wages or a decrease in post-tax wages, or a combination of the two.
The dominant effect is thought likely to be a decrease in post-tax wages, as income taxes are for the most part passed on in full to the type of workers affected.
In the Government’s view, the decrease in wages will reduce the number of people willing to work in construction at the lower wage, meaning the impact of the measure would be shared between workers and employers.
Jason Campbell, chair of the Recruitment and Employment Confederation’s Construction Group, said: “Any change in status also comes at a cost to the supply chain and it is vital that this is properly understood.
“Recruitment agencies are in a position to easily supply flexible workers on a PAYE basis; however, it is vital that the supply chain meets the cost of this change and that the workers involved understand its implications.”
A Treasury spokesman said false self-employment occurs when workers are treated as self-employed for tax reasons despite their work on a day-to-day basis showing an employment relationship.
He added: “The problem of false self-employment affects not only the ability of compliant businesses to be competitive, but also workers’ entitlement to social security benefits, as well as representing a risk to the Exchequer.”