A change in the Status Quo?
 For many years, HMRC have been concerned that individuals are correctly classified as employed or self-employed. Usually, there are more taxes payable overall if the individual is classed as an employee. Also, employees generally obtain more statutory protections than the self-employed because of a variety of employment law legislation which includes for example, Statutory Sick and Maternity pay.
Clearly, for these and other commercial reasons, such as flexibility, many employers would rather the people that they pay work for them on a self-employed basis. The construction industry, whilst not alone, is a business sector which sees a great deal of work conducted by self-employed subcontractors.
The government has decided that the best way to address this issue, which they refer to as ‘false self-employment in the construction industry’, is to introduce legislation which deems workers within the construction industry to be taxed as employees unless one of three criteria is met.
HMRC comment: ‘Where both the worker and the engager decide that self-employed status is the desired outcome, then it is very challenging for HMRC to build a full and accurate picture of the true terms of the engagement. As a result, demonstrating any mismatch between the contract and the reality can be difficult and time-consuming. Or, if there is no written contract in place, establishing the actual terms of the engagement can also be problematic.’
The criteria
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.
- 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.
We will keep you informed of the progress of these proposals but in the meantime please contact us if you need further information on status issues.
Disclaimer - for information of users: This newsletter is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this newsletter can be accepted by the authors or the firm.
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