HM Treasury's proposals to change the rules on employment status of construction workers have been slammed as "discriminatory" by a leading tax consultant.
Dave Williams, tax partner at Francis Clark LLP and managing director of CIS Tax Advice, argues it is wholly unfair to single out the industry for special treatment with respect to self employed status.
Williams asked: “Why do these proposals only embrace the construction industry? They effectively seek to introduce one set of rules for determining self employment in the construction industry, while applying another, long established set to all other trades, professions and vocations. It is difficult to see how this is fair; it appears to discriminate against construction workers.”
The consultation False self-employment in construction: taxation of workers ended in December 2009. A summary of responses received from interested parties, together with the Treasury’s response to these, has been published on the Treasury’s website.
The consultation document proposed that a worker could be deemed as self employed in the construction industry only after satisfying one or more of the following three deeming criteria:
- the worker supplies all of the plant and equipment required for the job he has been engaged to carry out – this excludes the ‘tools of the trade’ which are traditionally held by the category of worker
- the worker provides all materials required in order to complete a job
- the worker provides other workers to carry out operations and will be responsible for paying them.
Williams said: "If these new proposals were to become law, they would have a catastrophic effect on many workers in the construction industry. Workers' net income would almost certainly reduce.
“There are glimmers of hope that the final rules may be a little more flexible than those currently put forward. It appears there is acceptance that it would be unfair and perhaps unrealistic to expect a genuinely self employed worker to be obliged to provide all plant, equipment and materials.
“It will be interesting to see how these criteria may be modified. In all likelihood a de minimus figure will be adopted so that, say, 15% of all materials used on the job must be supplied by the worker, or tools of the trade may be taken into account provided that the cost incurred by the worker in acquiring them amounted to, say, £2,000 or more."
The Government has undertaken to consider whether other criteria could be taken into account in determining whether or not a construction worker is genuinely self employed. A number of respondents suggested alternative criteria, some of which made sense, according to Williams, such as the requirement for public liability insurance.
“Conspicuous by its absence from the response document is the aspect of control," he added. "This has featured constantly in status disputes over the years. The latest questionnaire used by HMRC to quiz a contractor about the status of his workforce runs to more than 100 questions, of which at least 15 relate to control.
“This has always been an important area. For example, if a worker controls when he works, how he goes about the job and when he decides to take time off, it is a pretty good indicator that he is his own boss and, therefore, self employed. However, if he is constantly under supervision and has to do what he is told when he is told, then he would appear to be an employee.
“Quite why control has not been brought into the thought process is a mystery, unless HMRC believes it would level the playing field somewhat in favour of the quest for self employed status."
The Government has stated that it will not seek to introduce any new rules concerning self employed status while the construction industry is suffering the consequences of the recession, which in theory, is some time off.
But Williams said: “Whenever the new rules are introduced, this will not detract from the unfairness of applying one set of rules to construction workers and another to everyone else. One can only hope that the final proposals do not unfairly single out construction; false self employment is not exclusive to this sector.
“Perhaps a viable alternative would be for the Government to seek to retain its better staff and increase resources to police the current regime. Surely this would result in a significant increase in tax revenues without discriminating against one working sector.”