The construction industry. By Simon Sweetman

cheers for the update, will consider next move

Hopefully articles like these help to generate concerted effort by the professional bodies and the industry, so that Revenue build in concerns at a policy level BEFORE the process is rolled out.

Of more pressing concern is the operation of a "by the book" policy by local districts regarding gross payment status and compliance failures. Is anyone aware of HMRC being receptive to "special circumstances" arguments were gross payment status is being revoked because of compliance failures?

It appears there is little discretionary power for HMRC to halt the revocation process ... reasonable excuse only. Have the professional bodies/industry lobbied for leeway to be shown, particularly in the current economic climate (similar to the special treatment afforded agri-business in the wake of foot-and-mouth)?

@Howard:
"Are there subcontractors who stay with the same firms for years? Undoubtedly."

So were it not for the fact that they were officially sole traders, the Intermediaries Legislation would deem them to be employees ?

I agree that self employment in the construction industry is market driven in that the self employed can achieve a higher net pay and employers a lower cost base.
The political decision is whether this should be considered an acceptable position.
Workload fluctuations can be covered through Agency staff (employed by the agency) and genuine subcontractors.
The side effects of the self employed hire/fire mentality is a lack of training/development and a low cost/low quality industry.
Employment in construction is key to modenising the industry, training the workforce we need for the future and raising standards.
The best way of changing the current position would be to reduce the financial gap between self employment and employment.

@Ian:
Yes, sounds ever so reasonable, but those "caught" by IR35 do not currently receive any "employment-like" benefits as a consequence of having to pay more PAYE/NI than a "standard" employee. (And I'm sure most would rather be "uncaught" than receive any benefits.)

So how would that work out - state-funded "Statutory Holiday Pay" ?]

And I have never heard any "official" reference to this issue - although for agency workers it would at least seem equitable that they would get automatic statutory protective "opt-in" to the Agency regulations, or the Temporary Workers Directive, as a "worker with ... an employment relationship with a temporary agency".

I must disagree with an earlier comment that it is a myth that self employed workers are cheaper.
As a contractor with directly employed staff we have to compete against those using self employed.
It is only necessary to look at the NI savings to the employer and the tax savings to the employee to see the difference not to mention the number of schemes there are around to "convert" employed to self employed none of which seem to be dealt with by the revenue.
Certainly fluctuating workload is a problem but that can be dealt with by agency staff (properly employed by the agency). Motivation of hourly paid staff has to be handled in other industries and I don't see why it should be an exceptional problem in construction that can only be resolved through casual labour.

I thought the construction Industry already had an amnesty in 96/97 ? or thereabouts. More rigourous enforcement is what we need, to support those that are trying to get it right, HMRC are still unable (goodness knows why) to spot the obvious offenders.

The first step should be to make taxation levels for (low capital) self employed and directors of small (low capital) companies match closer to the taxation levels for employed people. Likewise the fact that someone is label as self employed should not have a great effect on what benefits they can get.

Then there will be a lot less people trying to abuse the system so the system should be able to be made a lot less complex.

At present there is the problem that HMRC can only cope with two states, “employment like” and “business like”. In real life a lot of people are somewhere in the middle, so there should be a new state “some were in the middle” that is tax in the middle of employment and company tax. E.g. you must pay out 50% of you contact value var PAYE. The least that is needed is for training/tools cost (include a reasonable portable PC every few years) to be allowed under IR35.

First, can I dispel the myth that 'self-employed' workers are cheaper than employed? My experience is that they are not! I'm a Director of a Construction company that employs around 40 and has 12 - 15 regularly engaged on 'self-employed' contracts, as well as many 'bone-fide' sub-contractors. It is fair to say that that using Labour Only Sucontractors can be advantageous for sudden increases, or decreases in workload, but by far the biggest driver is that many crafts people want to be Self-employed! They can work the hours they wish and because they're usually paid on some kind of measure or total price are usually very keen on getting on with their work, so usually work with a minimum of supervision!

We've been through a Compliance Review in 2007, which took months (three meetings and hours of senior management time) and during which we were automatically treated as guilty with each decision we had taken seemingly being reviewed for errors, although it finally ended up with HMRC 'happy' that we had conducted 'appropriate status reviews' and were closing the file. We make sure each of our S/C's want to be self-employed, carry P/L insurance, that they are correctly contracted and that they provide their own tools & transport.

I've no doubt there are contractors out there that try to abuse the system, just like there's a small minority that try to abuse, cheat, scam any system, but that doesn't mean everyone is guilty!

Perhaps UCCATT should spend some of it's money on setting up one or two workers co-operatives and show us how everything it advocates can be done successfully in a competitive economy.

For a contractor to employ his labour involves further costs such as NIC, holiday pay etc. Over the years I have seen many contractors trying to do the job properly by employing workers under PAYE but they need to compete in the real world and contracts are lost to those firms using cheaper forms of labour such as the self-employed sub-contractors.

Unless there is a level playing field for all contractors there is no incentive to join the PAYE club and the suggested amnesty is worthless if work cannot then be obtained.

The Construction Industry in several respects does seem to be a "special case".

The workers are, as pointed out, are very commonly self-employed.
The is little job security for workers.
Workers have virtually no rights by being self-employed.

The above factors work hand in hand - it could be said morally that the the tax "adavantages" of being self-employed compensate for the lack of employment rights and job security.

As for employee rights, one contractor client of mine was well and truly ripped-off by a former worker who he took on on an employed basis (because paid hourly rate, worked for no-one else) - not surprisingly that contractor is not enthusiastic about taking on any more employees - new workers will be piece-work / job-rate subcontractors on a self-employed basis from now onwards.

Having been involved in several contractor "Employer" compliance reviews in recent years for contractors and never yet had a case of having to concede employment status for workers, I see no reason why my contractor clients should change the status of their workers to employees, just to fit in with all-UK-every-industry statistics when their own industry (Construction) has its own unique circumstances.

(I can't believe I just wrote that)

Simon is right to say that this is the elephant in the corner. There are some significant parallels and overlaps with IR35. And commonsense (and probably EU law somewhere) demand a level playing field not only within the construction industry but also as between the industry and the wider economy.

To get an insight into the size of the problem try googling "tax refund" and "cis" with the UK filter on. Then draw your own conclusions from the existence of dozens (hundreds?) of specialist outfits boasting of their prowess at garnering tax refunds, with many offering "no refund, no fee"...

Hmmm, so I was wrong a while back to comment that the CIS seemed like the IR35 of the construction industry - nothing at all like it, based on Simon's penultimate paragraph.