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False self-employment crackdown making contractors ‘less competitive’

The introduction of new tax rules to crackdown on the false self-employment of agency workers is making contractors “less competitive” when bidding for work, a survey has found.

One in ten construction firms (9.3 per cent) said increased employment costs as a result of the legislation were making them less competitive when tendering for work, according to a survey of 600 construction firms by law firm Irwin Mitchell.

Almost one in five firms (18.6 per cent) said the new rules had affected how they price work when tendering for contracts.

HMRC introduced new rules in April requiring agency workers to be taxed in the same way as direct employees, with agencies deducting national insurance contributions and income tax through PAYE, unless there is evidence workers will not be supervised, directed or controlled by anyone.

From April 2015, it will also become compulsory for agencies to report individuals who are not taxed as employees to HMRC, or face financial penalties.

Irwin Mitchell employment partner Chris Tutton warned that more contractors could be affected by cost increases as a direct result of the new tax rules from next year when the reporting requirements come into force.

Mr Tutton said: “Recruitment agencies operate on tight margins and as their costs rise and reporting obligations increase, we believe that the number of firms that say that these rules will impact on how they price work will grow considerably.

“This in turn will have a knock on impact on the competitiveness of UK construction firms.”

Among construction firms that use temporary agency workers, 13.5 per cent said recruitment agencies had passed additional costs associated with the new rules on to them, while 61.1 per cent said they had not and 25.4 per cent were unsure.

The new rules “could not have come at a worse time for construction firms”, the report said, with labour cost inflation already affecting contractors’ ability to deliver jobs at prices bid when the market was cooler.

Recruitment specialist Hays’ construction director Duncan Bullimore said the “most conspicuous” cost increase for construction firms was the payment of national insurance contributions for agency workers.

“The agency has to make an employer’s NIC contribution paid to the government, and that is the part that has to be passed on to the end-user, the developer, main contractor or subcontractor.

“That is where the cost is most conspicuous. At that point there has probably been a 10 per cent increase in cost,” he said.

Mr Bullimore added that the legislation could have had a more serious negative impact on individual workers’ earnings, but that it had been mitigated in many cases by wage inflation across the industry.

UCATT general secretary Steve Murphy said that where construction firms were using umbrella companies to employ temporary labour, workers were having to pay both the employer’s and employees’ national insurance contributions.

“The rate that the job is advertised for is not the rate the worker is paid, in fact highly skilled workers are now only being paid the minimum wage.”

“Contractors should be valuing their workforce and directly employing them. This will increase productivity while also boosting safety levels and would also lead to an increase in apprenticeship rates,” he said.

An HMRC spokesman said: “HMRC is committed to creating a level playing field in the domestic market by removing any advantages gained by those who seek to avoid their taxation obligations.”

Independent research company Synergy interviewed senior decision makers at 609 construction firms on behalf of Irwin Mitchell in July and August 2014. Almost 70 per cent of companies included in the survey had between 100 and 499 employees.

Readers' comments (1)

  • Less competitive, you are kidding me right? I mean God forbid we might give the hard workers in this industry who actually make it happen permanent stable employment and a living wage.

    Because cheapest is ALWAY best isn't it?

    Well done HMRC on levelling the playing field a little. There must also be a case for passing back those costs to clients if the law has changed.

    The construction industry has become a basket case behind the scenes with market stall holders fronting it up to clients to make it "look" good.

    Unsuitable or offensive? Report this comment

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