Building tax crackdown hits small firms

Hundreds of small and medium-sized practitioners face huge cuts in their income following demands by the Inland Revenue that self-employed workers in the construction industry must shift to direct employment.

Construction industry groups believe that up to 400,000 self employed construction workers could be forced to give up their independence. The Revenue estimates #3bn is lost each year in tax and national insurance owed by sub-contractors falsely registered as self-employed.

The knock-on effect for small practitioners, who stand to lose clients once they drop their Schedule D status, could be catastrophic. Several firms said they could lose large numbers of clients, and some practitioners might even go out of business.

‘We have about 50 small sub-contractors on our books,’ said Mike Hughes, tax manager at London-based general practitioner Dyer & Co. ‘Their books are easy to process, so it is a very lucrative business. We will cope, but they are bread and butter clients.’

Shrewsbury-based sole practitioner Robert Orme of Barcroft Orme, said he had already begun to lose clients. He said about 40% of his clients were sub-contractors working in the construction industry. ‘We will have to tighten our belts. It is very competitive out there now for this kind of business.’

Currently, the Revenue is locked in a battle with construction industry groups over the way the changes are being implemented. The large construction companies are angry that the Revenue plans to phase in the changes over the next year rather than setting a date in the future when all firms need to comply. ‘It leaves those contractors which are obeying the Revenue rules at a disadvantage,’ said Liz Bridge, a spokeswoman for the Building Employers Confederation.

The Federation of Master Builders is also concerned that small contractors could lose their tax exemption certificates under the new rules. ‘This will mean that small businesses will lose 25% of their income up-front, which could leave their cashflow position in a disastrous state.

The Revenue issued guidance in April that called on all construction firms to assess whether sub-contractors should be employed under PAYE.

The guidance focused on the amount of control a contractor has over a worker and the length of their engagement.