This shows the effects of HMRC’s mounting crackdown on the employment status of contractors in the construction sector.
No Palaver, provider of accounting services to contractors, claimed that since the Construction Industry Scheme was introduced in 2007, HMRC has become increasingly draconian in its treatment of contractors in the construction sector, including forcing contractors to justify their self-employed status. This has caused problems for many contractors, as they often lack the paperwork to prove that their employment status has been fully considered.
Graham Jenner, Director at NoPalaver, said: “There has always been a huge number of self-employed workers in construction. The tax authority is now forcing businesses and contractors to prove that they have considered this fully, which can be extremely difficult – the construction industry is not always exemplary in keeping administrative records.
“If they don’t have the paperwork to prove that they should be treated as self-employed, the company could face an investigation by HMRC. This could lead to a penalty worth the equivalent of six years’ worth of PAYE taxes and national insurance payments, plus interest and up to 100 per cent of the tax in penalties.
“HMRC has long been suspicious of self-employed workers, and is now cracking down hard on those it feels don’t meet its criteria. This is a pity, since the flexibility provided by self-employed status is one of the ways both businesses and workers in the construction sector have remained competitive through an extremely challenging period for the industry.”
The new 'false self-employment' proposals are aimed primarily at the construction sector and plan to target those workers who are often forced into mass-marketed schemes as their 'employers' seek financial advantage from having them 'off the books'.
A consultation on the issue closed in early February, with a change in the law expected to treat workers using these schemes as employed for tax purposes, althought there are wide-spread concerns that it could go further than originally intended.
HMRC says that it believes there are around 200,000 workers in the construction sector who are registered as self-employed though outsourced agencies – known as ‘onshore employment intermediaries’ – compared with only 50,000 workers in all other sectors combined.
In an outsourced agency arrangement, a construction business sources self-employed workers through an external provider, which in turn pays the contractor. HMRC claims that this employment structure is used to avoid PAYE taxes and national insurance contributions, when the workers involved are de facto employees of the construction company.
However, No Palaver points out, the tax authority has never successfully challenged the legal status of these arrangements, despite numerous attempts to do so in recent years.
Graham Jenner said: “HMRC has long sought to force self-employed construction workers to be classified as employees, and has so far failed to win any significant legal victories on the issue. It now seems to have decided that changing the law altogether is its best chance to win.
“This makes it more important than ever for construction companies, employment agencies and construction sector contractors to make sure that their tax arrangements are fully compliant with the new legislation. Failure to do so could result in massive tax bills, and loss of vital flexibility in employment.”
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Susie Hughes © Shout99 2014