The consultation period on HM Revenue & Customs’ ‘False Self Employment in the Construction Industry’ paper ended on 12 October and has been subject to heavy criticism from leading tax bodies.

Whilst the UK’s leading construction workers’ union welcomes the consultation, claiming that the ‘bogus self employed’ are denied basic employment rights and work on building sites with lower safety levels’, leading tax bodies have concluded that entire categories of workers currently regarded as self employed might be re-classified as employees.

The consultation paper proposes legislation to recover an estimated loss to the Exchequer of £350 million per annum by reclassifying certain self-employed workers.  The Government has concluded the best way to address this issue for income tax and NIC purposes will be to introduce legislation which deems workers within the construction industry to be in receipt of employment income unless one of three simple criteria is met.  The worker will still be deemed to be self employed for employment legislation purposes but will simply be classified as an employed worker for tax purposes.

Criteria  

The Government believes that the criteria are ‘reliable indicators’ within the context of the construction industry of a worker being in receipt of self employment income and unless they are able to meet at least one of the following criteria, they will be regarded as employees for income tax purposes:

1.             Provision of plant and equipment - a person will need to provide plant and equipment required for the job they have been engaged to carry out.  This will exclude the tools of the trade normal and traditional in the industry for individuals to provide for themselves to do their job.

2.             Provision of all materials - that a person provides all the materials required to complete a job.

3.             Provision of other workers - that a person provides other workers to carry out operations under the contract and is responsible for paying them.

The new rules have been criticised as not providing an accurate answer to an often complicated issue and would instead create a false employment status of employees with no employment benefit rights.

The Government would collate and publish key responses as soon as possible after 12 October 2009.

Posted on 28 Oct 2009