For many years taxation professionals and anyone who has engaged subcontract labour have been saying that it was the intention of H M Revenue & Customs (and Inland Revenue before it) to have all workers taxed under PAYE. Yet when this point has been put to officers of the department the response has always been that that was not the case. Their intention when undertaking a review of a workers employment status was merely to ensure that the correct employment status was used.Well, as far as the Construction Industry is concerned, that could all be about to change. The Treasury are of the view that there are between 200,000 and 400,000 workers who are working under terms and conditions which are akin to employment but are treated as self-employed and which costs the Treasury some £350m a year. As a result the Treasury issued a Consultation Document on 20 July 2009 in which it set out its proposals to counter what it calls ‘false self-employment’ in the industry.In essence, the proposals are to treat every individual worker engaged to undertake ‘construction operations’ as being in receipt of ‘employment income’ which will be subject to tax and national insurance contributions under PAYE. This will become the default position with only those workers who met one of three criteria being able to continue to be treated as self-employed and paid under CIS. The criteria are:

The subcontractor provides

• Plant and equipment – not just hand tools

• All materials

• Other workers for whom the subcontractor is responsible for paying

This will clearly see the end of self-employed labour-only subcontractors in the construction industry, at least as far as tax and national insurance is concerned.

It is made clear that these are only going to be ‘deeming’ provisions and that any decision to deduct tax and national insurance under PAYE will not confer employment rights on the worker.

Whilst there is no doubt that there have been cases where workers have been reclassified as employees it is a fact that H M Revenue & Customs have been far from successful at the Commissioners and, indeed, the new Tribunals when it has come to defending their view that workers should be reclassified. It would appear in many cases the workers were rightly classified as self-employed. These proposals would appear to be a case of toys being thrown out of the pram as if these proposals are applied to many of the well known tax cases over many years then the decisions that the worker was properly self-employed would be reversed.

Anyone who engages labour only subcontractors should read the Consultation Document, which can be found at:    
www.hm-treasury.gov.uk/consult_false_selfemployment_construction.htm and should consider taking up the issue with their accountant or federation. The consultation period finishes on 12 October 2009 and if the Treasury do not receive any negative feedback to the proposals it must be assumed that it will be brought forward into legislation.


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