Morgan Harris

False self-employment within the construction industry – Proposed Changes

If you carry out work within the construction industry and use subcontractors you need to be aware of what the proposed changes would mean for you.

True to the announcement in the 2009 Budget, a consultation document has recently been released aimed at simplifying the definition of what employment actually is. If the proposed changes go ahead as currently suggested, the practical implications for anyone within the construction industry that engages subcontractors could be huge.

The consultation is aimed at what HMRC describe as ‘false self-employment’ within the construction industry. False self-employment arises where workers are treated as self employed for tax and National Insurance purposes despite the fact that the way in which the work is carried out on a day to day basis, suggests (in the eyes of the Revenue at least) that there is an employment relationship.

The consultation proposes a new ‘deemed’ employment status for construction workers, who would be deemed to be employees unless they can pass one of the following tests:

• They provide the plant and equipment required for the job that they have been engaged to carry out (excluding any tools that it is normal within the industry for individuals to provide for themselves to be able to do their job); or
• They provide all materials required to complete a job; or
• They provide other workers to carry out the work under the contract and are responsible for paying them.

The result of this re-categorisation would mean that the payments would not only have to be subjected to payroll deductions (PAYE and NI) but also an Employers NI liability would arise. The end result would be an increased tax cost for both the newly deemed employee and employer.

The stated objective of the consultation is to develop the best approach to determining someone’s employment status by ensuring that it is fair, clear and can be easily applied; interestingly the document does go on to acknowledge that there would be a financial impact of these changes because it states that it ‘intends that the measures developed as a result of this consultation will take effect when the industry is in a stronger position’…..

Gross payment status reviews for the construction industry

Information just released shows that a significant number of subcontractors are failing to meet the compliance tests required to maintain their gross payment status.

Even after all review and appeal procedures have been pursued, 15.7% still failed to meet the requirements and as a result have lost their gross payment status.

The Tax Treatment Qualification Test (TTQT) is run every month to check whether subcontractors have met the stringent compliance regime. If the tests reveal a compliance failure then the gross payment status of that subcontractor is in jeopardy.

The loss of gross payment status will be declared to all existing clients of a business and will be disclosed to prospective clients. As a result it can cause severe damage to the reputation (and cashflow) of that business.

These consequences can be completely out of all proportion to the compliance failure that gave rise to the loss of gross payment status.

On a positive note, it has been agreed that where a late payment of tax is made where this is the subject of a formal arrangement with the Business Payment Support Service, this does not count as late for compliance test purposes.

If you have any questions regarding the construction above please contact Alan Morgan on 01993 700010.

Alan Morgan
Morgan Harris