Quarterly News

False self-employment in construction

The government has concluded that the best way to address the issue of false self-employment in the construction industry for income tax (IT) and national insurance (NI) purposes is to introduce legislation which deems workers within the construction industry to be in receipt of employment income unless one of three simple, clear and easy to apply criteria is met.

HMRC state:

The government believes that the following three criteria are reliable indicators, within the context of the construction industry, of a worker being in receipt of self-employment income:

• Provision of plant and equipment - that a person provides the plant and equipment required for the job 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; or
• Provision of other workers - that a person provides other workers to carry out operations under the contract and is responsible for paying them.

A worker will have to meet one or more of these three criteria in order not to be deemed to be in receipt of employment income.

If the worker is deemed to be in receipt of employment income, PAYE will be due on the payment he receives. The person who makes the payment to the worker will have the obligation to apply the statutory criteria.

However, it is intended that the introduction of the test should not have an adverse impact on those genuinely carrying on a business and the test has been formulated to achieve this. The government recognises that a flexible labour supply is important to the industry and that self-employed workers who are carrying on a business make an important contribution to this.

This measure will only deem a worker to be in receipt of employment income for the purposes of income tax and NI and will not confer employment law rights on a worker. However, the government hopes that the tax changes will also engender a more appropriate treatment of workers throughout the industry, leading to a culture of responsible employers applying employment rights and providing training opportunities.

Where the person in receipt of the worker's services and the payer are the same, or the payer is an employment agency, PAYE and NI will be due on the full amount of the payment. Where the payer is an intermediary, the definition of payment in the Managed Service Company legislation may be adopted.

These are proposals at the moment and we will keep you informed of developments but in the meantime please contact us if you need further information.

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