The construction industry has, quite frankly, been a nightmare for the taxman
to deal with – but it is showing little sign of giving up on what it feels is
abuse in the sector.
The main problem has been around false self employment in the industry,
keeping vital funds out of the Treasury’s coffers – around £350m a year
according to estimates.
Its latest consultation opened up the possibility of setting three criteria
of which a worker must meet one to be classed as self employed. These tests
revolve around provision of either tools, labour or materials on site.
At its launch, advisers cast doubts on the criteria’s suitability –
effectively saying they were too simplistic for the complex relationships
construction workers have on site.
However the taxman expects to, generally speaking, stick to the plans it
outlined, despite admitting in its summary of consultation responses that many
interested parties, such as trade bodies, accountants and employment agencies
In a nutshell, the “overwhelming view was that the proposals would not
achieve the aims set down in the consultation”, but the government was committed
to dealing with the issue.
“Given that there is broad recognition of the problem of false self
employment, continuing with the status quo, or legislating the current case law
tests are not viable options,” said the consultation.
Yet the three tests are far from perfect, warn respondents.
The are many circumstances where it was impractical to provide your own
equipment on a job, and similar for materials.
While claiming that the tests provide a “solid start” in developing new law,
HM Revenue & Customs does admit that “further development” is required.
One option would be to introduce VAT registration in as additional criterion.
Anne Redston, visiting professor in tax law at King’s College London, said
there were advantages to introducing VAT-registered self employed in as a test,
primarily as the taxman could keep a closer eye on the individual. “You would
have to file quarterly records,” explained Redston. “You’d be on their radar.”
But she warned that recordkeeping would have to improve dramatically for
most. “Small operators below the VAT threshold would have extra red tape.”
Another concern would be the taxman’s ability to handle VAT registrations,
having had some form for mucking the whole process up in the past. The number of
registrations leaped after changes to rules to combat carousel fraud.
Alastair Kendrick, tax director at Mazars, is concerned that the tests could
drive false behaviour between the construction companies and workers, which he
has seen before in the industry.
Examples include the hiring of equipment from the company to make it look as
if you have brought it on to the site, or selling materials to the worker and
“You could have funny transactions taking place,” said Kendrick.
He views the situation as one that HMRC would like cleared up by bringing
everyone into the self-employed bracket.
The timing of the consultation, which will now require further discussions,
is a political one, he claims.
Lining up legislation around the construction industry prior to the election
was not a wise move for the government, hence further discussions, he believes.
The legislation and its application are still some way off, with the
government looking to avoid introducing rules prior to an upturn in the economy,
it says in the consultation.
So there is no end in sight for what some believe is an unsolvable problem.
You would be self-employed if one of the following criteria is met:
1 Provision of plant and equipment: that a person provides the plant and
equipment required for the job they have been engaged to carry out. This will
exclude the tools of the trade which it is normal and traditional in the
industry for individuals to provide to do their job.
2 Provision of all materials: that a person provides all materials required
to compete a job.
3 Provision of other workers: that a person provides other workers to carry
out operations under the contract and is responsible for paying them.
Source: HMRC Consultation
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