Self-Employed Construction Workers taxed as Employees
Contractors working in the construction industry may be taxed as employees, following Government proposals to crack down on what it calls “false self-employment”.
According to HM Revenue & Customs (HMRC), 400,000 construction workers are registered as self-employed when they should be classed as employees – amounting to around £350 million a year in lost tax and National Insurance contributions.
Under the proposed reforms, outlined in a new HMRC consultation paper, all construction workers would be deemed employees and be subject to PAYE taxation, unless they can pass a three-step test.
Workers would be required to show that they provide heavy equipment and materials, for example, to carry out their job, or that they are responsible for engaging other contractors, to prove that they are genuinely self-employed.
Providing normal ‘tools of the trade’ will, under the new rules, be excluded. Business owners, or those responsible for paying the worker, would be required to apply the statutory criteria. Contractors would have to meet at least one of the three criteria in order to be deemed self-employed.
The proposals are likely to incur strong criticism from the construction industry, which relies heavily upon self-employed contractors and flexible labour.
Accountancy firm MacIntyre Hudson’s tax principal, Nigel May, said the proposals were an “unfair levy on a single, vulnerable industry”.
“The reality of this damaging proposal is that a number of legitimately self-employed workers will be socially engineered into a deemed employment status.
Most worrying of all is the Government’s false assumption that the high level of self-employed workers within the construction sector should automatically be treated with suspicion, when it is the simple reflection of how the industry operates and the many skills with which it needs to engage.”
However, an HM Treasury spokesman said that workers who were falsely registered as self-employed created financial irregularities and prevented competiveness.
“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.”
A consultation on the proposals is open until 12th October 2009.
To access the consultation, visit the HM Treasury websiteto read False self-employment in construction: taxation of workers (PDF)
To contribute to the consultation email email@example.com or telephone 0207 270 5330