Susan's Legal Bits

In October 2009 Susan was interested in.....

....the False Self Employment Consultation

Hello everyone,

I hope you enjoyed reading Wole's legal bits last month as I did.

This month I want to share my thoughts on the draft 'false self-employment' consultation that HMRC have recently issued. Consultation usually comes before a piece of legislation is put forward to be passed by Government and, in this instance, HMRC are preparing to propose a piece of law that sees the tests for being considered self-employed in the construction industry changed - for tax and NIC purposes only.

Essentially the document is tackling bogus self employment within the construction industry. It states that to be genuinely employed within construction workers need to either:

a) provide plant and equipment required for the job themselves

b) provide all the materials for the job

c) provide other workers to carry out operations under the contract and is responsible for paying them.

This would be a huge change to the industry (and it is ONLY targetting the construction industry) as thousands of self-employed individuals do not turn up to their contracting job with plant and equipment (as these tend to be huge pieces of machinery that will be owned by the end client), do not turn up with cement and bricks (again, provided by client) and work alone (do not take along their own labour force to a job).

If my hunch (that several currently self-employed individuals will fail these tests) is correct then those individuals will no longer be able to declare themselves self employed for tax purposes and will have to have PAYE tax and NIC deducted by whomever pays them.

Horror? Yes this is possibly what you are feeling right now if you have been self-employed for years but only provide your normal tools of the trade to do your contract work.

There are several issues to consider. If this came in, those of you who were once deemed self-employed for tax purposes will now face PAYE and NIC on every payment. On the other hand you will NOT be treated as 'employed' for the purposes of all employment rights - notice period, terms of employment, pension, SSP, holiday pay, unfair dismissal rights etc etc.... the list goes on.

So...where is the benefit for you?

Well, tax and NIC will be deducted as you go along and eventually there would be no need to do a self assessment at the end of the year (is that much of an incentive?)

And what are the benefits to the economy?

The people that pay you your self-employed gross amount now (or take a CIS tax) will have to start doing PAYE payroll - this means employing payroll staff who understand tax codes, NIC thresholds and all sorts. Small companies may not be able to afford this expertise internally so may outsource your payroll to payroll bureaus. They (your client) will have to pay the external bureau for this service of course as well as pay employer's NIC.

And when you leave your short term 3 day job?

That client will have to give you a P45 to take to the next job starting the next week - if payroll bureaus are being used there may be a delay in you getting the P45 through the post and you may have already worked on your next 1 day job and are leaving that to go onto the next one....The P45 catching you up and following you along may mean delays in payments or worse still some clients having to pay you on emergency tax due to lack of P45 or P46 in time for them doing their payroll. Administration will certainly be heavy from what I can imagine and HMRC will be receiving electronic submissions of P45s in higher volumes than ever known as these self-employed chaps (sorry, now deemed 'employed' for tax purposes) move from short term job to short term job at their usual regular rate.

What are the benefits for HMRC?

An increase in PAYE tax and NIC ongoing throughout the year. Yes, they currently send you tax bills at self-assessment time but perhaps a more regular (and higher) income is what they need/would like at the moment.

Of course, I cannot claim to be an expert in what HMRC are intending to do or indeed how it will affect the self-employed worker in the construction industry IF it does come in but my thoughts above have stemmed from reading the consultation paper provided by HMRC and knowing the industry and the kind of workers that we currently help who are self-employed.

We have expressed our concern and comments to our Advisors and know hat they are going to feed back to HMRC the concerns from the industry, which will include companies like us, construction companies and agencies.

We would like to hear your thoughts though. How would it affect you if you have been self-employed for some time and then, due to legislative changes, you were deemed 'employed' for tax and nic purposes only?

Have a good month, don't have nightmares about this as it is a way off yet....and I'll let you know as soon as I know anything new.

To give Susan your suggestions and comments you can get in touch with her here.

All comments provided on my blog are for informational purposes only. My thoughts and opinions are my own with agreement from my employer as being suitable for sharing with the wider world. Any advice, or writing that might be taken as advice, should not be deemed in any way as professional Legal advice and are only the musings of a HR practioner whose sole aim is to help where she can.