False self-employment in construction - taxation of workers

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12 August 2009

HMRC has recently published a new consultation document entitled False Self-employment in Construction: Taxation of Workers. This outlines the Government's proposal for addressing the problem of false self employment in construction. 

The consultation started on 20 July and comments are invited by 12 October 2009. It is expected that any measures arising as a result of the consultation will be introduced between mid 2010 and 2011.

The issue

At present the person engaging a worker (the "Engager") has an obligation to determine whether the worker is self-employed or employed for income tax ("IT") and National Insurance ("NIC") purposes through the application of a series of case law based tests.

False self employment occurs where the underlying characteristics of the relationship are employment but the engagement is presented as self-employment. The high level of false self-employment (in particular in the construction industry) is driven primarily by the beneficial IT and NIC treatment that self-employment attracts.

HMRC has taken a number of different steps in the past in order to deal with this problem but has made no significant lasting effect on levels of false self-employment within the construction industry.

The proposed solution

The Government proposes that where an Engager whose main business involves the carrying out or commissioning of 'construction operations', uses the services of a worker to carry out such operations, then the payment received in respect of those services will be deemed to be employment income unless the worker fulfils one or more of the following three statutory criteria:

  • provision of plant and equipment – that a person provides the plant and equipment required for the job that 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
  • provision of other workers – that a person provides other workers to carry out operations under the contract and is responsible for paying them

It is important to note that although it is the work that is done for the Engager that is relevant for the deeming provisions, the person responsible for making the payment to the worker will have to apply the statutory criteria. They will have responsibility for applying PAYE and NIC's to the amount of employment income and for accounting for employer's NIC's.

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