The Inland Revenue’s construction industry tax scheme came under fire from tax experts last week (12-19 November) who claimed its introduction next year will force legitimate self-employed into the PAYE system.
The radical tax overhaul comes into force next August and will tighten up the compliance test for self-employed tax status, allowing individuals to receive a gross payment of wages and settle their tax bill twice a year. In order to receive a tax certificate, a subcontractor must have an annual business turnover of more than #30,000, after deducting the cost of materials.
Frank Dunbar, project director for the Construction Industry Tax Scheme, said: ‘We’re trying to identify the genuine tax compliant businesses through turnover. It’s very difficult to get tax from itinerant labourers who have no business infrastructure. They can charge #2,000 for building a wall but they’re just selling their labour,’ he said.
He revealed the Revenue has been in contact with some of the Big Five firms over the tax overhaul, but said ‘accountants have not paid much attention to the nuts and bolts of the system – they’re more interested in the legislation.’
David Brown, chairman of the building committee at the Federation of Small Businesses, said a #30,000 turnover threshold to receive gross pay was too low for many one-man businesses. ‘Thousands of legitimate businesses, such as an electrician with a little shop, will never reach the #30,000 turnover limit in their wildest dreams.’
He called for an appeals procedure for individuals to prove that they are running a legitimate business.
John Rayer, head of private clients at Robson Rhodes, agreed the #30,000 cut-off appeared ‘arbitrary’, but said that accountants should alert their clients to the benefits available through PAYE. ‘If people move to PAYE and do site-base work, they can claim travel expenses from home to work,’ he said.
He advised employers to maintain a proper contract with employees to clarify the tax distinction between the employed and self-employed. ‘For freelance work you don’t want to be too closely associated with one company.’
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