Treasury to probe ‘false employment’

The need for a review was highlighted in a Westminster Hall debate in which economic secretary Ruth Kelly came under pressure from Labour MPs to act against ‘false self-employment’, with emphasis on the construction industry, but extending beyond it.

Kelly said that while the Treasury was ‘considering options’, particularly in regard to the Construction Industry Scheme – the Revenue’s scheme for ensuring truthful self-employment claims – ‘we are not expecting to change our fundamental approach’.

She revealed that one option is to extend the CIS system to cover e-businesses as well.

Kelly said it was ‘important that there is a place for genuine self-employment’ and insisted that the existing ‘case law approach’ to determining individual cases ‘remains the best way to provide clarity’.

She said the government accepts there is an element of false self-employment in the construction industry but said the requirement for agencies supplying labour to operate PAYE had resulted in 250,000 workers moving from self-employment to employment.

‘[Sixty] special compliance offices are likely to play a particularly significant role in pulling the rug from under any composite companies in the construction industry, or anywhere else, that might be used as a front for false self-employment,’ Kelly said.

‘To do so, they will use the service company legislation – IR35 – that we introduced specifically to ensure that those who should properly be employees pay tax and national insurance contributions on the right basis.’

She stressed the CIS scheme does not confer self-employed status – merely secures payment of tax and NICs on account in order to avoid evasion and curb the black economy.

Barnsley West and Penistone Labour MP Michael Clapham called the debate to highlight his claim that there are 400,000 ‘falsely self-employed workers in construction” costing the Revenue “at least Pounds 2 billion a year’.


Information on the Construction Industry Scheme

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