The government has released a consultation document on 20 July which outlines their intention to further address what they believe to be a continuing issue of “false self-employment” in the construction industry. In what appears another attempt by the government to pull more businesses into the Pay As You Earn scheme, the government are looking to introduce legislation that deems income received by subcontractors who work within the industry, as employed income if certain criteria are met.
The consultation document describes the term “false self-employment” as the situation where the underlying characteristics of the relationship are that of employment but the engagement is presented as self-employment. The benefits of businesses portraying self employment is that, in general terms, they will pay less tax and national insurance.
With serious questions being asked as to why the construction industry are being targeted again, the government has included statistics in the document which outline that the percentage of self employed individuals in the construction industry is three times as more as any other industry, with 34% of workers in the industry being self employed.
Proposal
What the government proposes is that where a person / business, whose main purpose involves the carrying out or commissioning of “construction operations” and that business uses the services of other workers or subcontractors to complete some construction operations, then the payment made in respect of those services will be treated as employment income unless one of three tests are satisfied.
The government are very clear that work carried out on domestic property for private households will not fall within the deeming rules.
Criteria
The government has listed the following three criteria as being key indicators of a self-employment relationship and therefore at least one of them must be satisfied to avoid the deemed employment income rules:
- Provision of plant – that a person provides the plant and equipment required for the job they are requested to carry out. This will exclude “tools of the trade”;
- 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.
Action
Businesses need to ensure that they fully understand the potential impact of this proposal, particularly when tendering for work. If the proposals are implemented, many contractors will see an increase in their subcontracting costs (primarily as a result of the additional cost of employer’s national insurance at a rate of 12.8%).
If you have any questions on the consultation document, or what impact this may have on your construction business, please contact Brett Bennett at our Carlisle Office.
For further details please contact Brett Bennett on 01228 530913 or email Brett@doddaccountants.co.uk
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