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False self-employment in construction - Teresa Payne

The Government announced proposals in the 2009 Budget to address false self-employment in the construction industry. Its aim is to introduce legislation to ensure that in many circumstances workers will be taxed as if they were in an employment relationship.

As part of this process the Government and HM Revenue & Customs have released a consultation document "False self-employment in construction: taxation of workers" setting out the proposed changes.
 
The proposals

Introducing legislation under which a payment received by a worker in respect of "construction operations" will be deemed employment income unless at least one of three proposed criteria is met.

a) The provision of plant and equipment – excluding tools of the trade normally and traditionally used in the industry that individuals provide for themselves, or
b) The provision of all materials – where a person provides all materials required to complete a job; or
c) The provision of other workers – where a person provides other workers to carry out operations under the contract and is responsible for paying them.

An overview of our commentary

  • These provisions depart from the main rules on employment status that are derived from case law developed over many years, therefore creating an uneven playing field compared to other sectors.
  • The Government believes the new system will address unfair competitive advantages for businesses that do not operate PAYE/NIC when they are obliged to do so.
  • The new rules will probably impose an additional cost and administrative burden for businesses, estimated at approximately 40 per cent of small businesses.
  • A significant additional cost will arise in respect of employer's Class 1 National Insurance contributions. Payers liable will inevitably try to pass the cost to customers.
  • The proposal will not confer employment law rights on workers.
    • Highly skilled labour only subcontractors who operate on a genuine self employed basis will be caught.

For further information on the proposals please contact Teresa Payne on 020 7893 2012 or email teresa.payne@bdo.co.uk

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