Construction Industry – Responses to consultation on “false self-employment”Friday, March 19th, 2010
In July 2009, HMRC published the consultation paper False self-employment in construction: taxation of workers in which new proposals were made for tackling the culture of “false self-employment” in the construction industry.
False self-employment occurs where workers are treated as self-employed for income tax and NICs purposes, despite the fact that the way in which the work is carried out on a day to day basis demonstrates that there is an employment relationship.
The Government’s intention is to address the issue of false self-employment for income tax and NICs purposes by introducing legislation which deems workers within the construction industry to be in receipt of employment income unless one of three specific criteria is met, instead of the wide range of factors currently used to determine employment status.
The proposed criteria are:
- Provision of plant and equipment – that a person provides the plant and equipment required for the job they have been engaged to carry out. This will exclude the tools of the trade which it is normal and traditional in the industry for individuals to provide for themselves to do their job,
- Provision of all materials – that a person provides all materials required to complete a job, or
- Provision of other workers – that a person provides other workers to carry out operations under the contract and is responsible for paying them.
These three criteria were proposed because, the consultation document argued, the existence of any one of them would be sufficient to indicate self-employment under the current employment status rules.
In March 2010, HMRC published a summary of the comments that had been received from interested parties to the various questions raised by the consultation document, and also gave the Government’s response to the views expressed.
There was an overwhelming view that the proposals would not achieve the aims set out in the consultation and that the issue of employment status was too complicated to be resolved by only three criteria. Many respondents raised the discrepancy between some workers being treated as in receipt of employment income for tax and NICs purposes but not for employment law purposes.
In response, the Government’s view is that encouraging contractors in the construction industry to comply voluntarily with current employment status guidance has had no positive impact on the problem of false self-employment. The Government does not believe it is appropriate to allocate more resources to tacking non-compliance in the construction industry compared to other sectors. Although not expressed in as many words, it is clear that the Government intends to legislate in the area rather than continue to promote compliance.
Despite the obvious and sensible acceptance that workers who are treated as being employees for tax and NICs purposes should also be treated as employees for employment rights, the Government’s view is that “changes to the tax and NICs rules do not create any precedent for employment law purposes”, pointing out the existing inconsistencies in the treatment of those working through intermediaries and managed service companies and the fact that there are separate rules that categorise certain workers as employed for NICs purposes. However, the document acknowledges that “on the basis that the deeming test is intended to ensure that only those who are providing their services under an employment arrangement pay tax and NICs as such, then it may be the case that these workers would also be considered employees for employment law purposes.”
Many respondents suggested additional tests of self-employment and modifications to the three proposed tests. The Government accepts that further discussion and consideration are needed in relation to the practical aspects of the tests in order for them to operate effectively. The Government also stressed that the intention is that each of the tests is capable of standing on its own in indicating self-employment. Other proposed tests will be considered but would have to meet that objective. In particular, the fact that a worker has specialist skills does not, in the Government’s view, necessarily indicate that a worker must always be self-employed.
These are only a few key issues raised by respondents and the responses document covers many more points. Readers with a significant interest in these proposals should consider the document in full.
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