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False self employment: Falling on deaf ears

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15th Mar 2010
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The responses to the consultation on false self employment in the construction industry have been published, together with comments on how government policy has changed as a result of the consultation.

However, there are several aspects on which the government is unmoved:

  • Legislation giving effect to a special test to determine status for PAYE and NIC purposes in the construction sector will definitely be brought forward
  • The fact that these rules may apply to workers who are not regarded as employees for employment purposes is of little interest – so no protection under employment law is to be offered to workers affected by the new "categorisation"
  • The three tests set out represent a good start to the categorisation of workers, and will form the basis of the new legislation

So what changes were made as a result of the consultation? Well, it would seem that the government agrees with respondents that the construction sector has been particularly badly affected by the recession, and therefore accepts that the new legislation should not commence until after the sector shows signs of a clear recovery. One would also assume that this will allow time for the Olympic stadia and other resources needed in London in 2012 to be contracted before the sector 'downs tools' in protest.

There is also some scope for potential modifications to the tests originally proposed, possibly by the inclusion of one or two additional tests, but more likely by the inclusion of clear guidance. The document indicates that the government is still open to modifying the tests slightly, but wants to keep the tests to a minimum, and each test must stand alone as a clear indication of self employment. It is possible that VAT registration may form another test but this is not certain at present.

I did find reading the summary of responses somewhat depressing. It reads as an 'old-style' consultation – we are going to do this anyway, so here is a chance to have a moan about it. Each section lists out respondents' views, and then 'the government's response' which could be paraphrased as "yes, but we are doing it anyway" in relation to almost every response.

Or am I having a bad day?

Replies (23)

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By Mike Carter
15th Mar 2010 10:20

Actual taxes

So the upshot is that 'false employment' will lead to employment taxes but not employment rights. So typical of this government.

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By Democratus
15th Mar 2010 10:39

Quel Surprise!

You just knew that this was going to be steamrollered into legislation despite the "consultation". Either make self employment versus employment tax and NI neutral, possibly reducing business start ups and discouraging entrepreneurship, or recoognise the inherent risks in not being an employee and reward it.

Is there any hope that a government of a different colour, (i.e. not Brown) will either legislate differently on this or reset and start again?

 

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Rebecca Benneyworth profile image
By Rebecca Benneyworth
15th Mar 2010 10:50

I did wonder whether it was just me

Have I got "consultation fatigue"? Having seen so many over the last 12 months was I being too jaded about this particular one? I know that many of the HMRC consultations have resulted in significant changes to original plans, but this one is different. Not from HMRC, but from HM Treasury - the high level policy setters; reading this yesterday afternoon (what a way to spend Mothering Sunday!) I got more and more depressed.

So I gave it to a "neutral observer" in the form of my OH. He has no axe to grind one way or another, but does help out with my clients, and therefore knows quite a bit about the building trade.

His comments : Some of the responses seemed to be made by those with an "agenda" - as they didn't stand up to logical analysis. And, as he put it down at the end, "Did you respond, because if you did it was a complete waste of time - they were clearly going to do it anyway"! So from an impartial observer, no it isn't me.....

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By User deleted
15th Mar 2010 12:06

construction HMRC

I think it is a mistake to blame the government for this. I am in no doubt that this is an HMRC initiative to earn "brownie points" with whatever government is in power. Unfortunately HMRC have over the last 20 years become so increasingly detached from commercial reality, one should not be surprised with this outcome.

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By dnicoll
15th Mar 2010 12:12

Nice bit of electioneering...

Good job Labour doesn't need the votes of anyone in the construction sector to win the next election then.......

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By andy1958
15th Mar 2010 12:17

Construction Industry

Do you think the HMRC have an "agenda" for non-dom's?

I read the other day they are underpaying by some £3 Billion per year!

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By Trevor Blackmur
15th Mar 2010 12:28

Staggering

The IR35 legislation which government hoped would solve the problem of false self-employment generally has only created an enormous mess and rather than generating revenue has ended up costing HMRC. Personal service companies and the like are already starting to creep into the construction industry more and more and this new legislation is going to open the floodgates.

The problem we have now is that even if the powers that be did equalise the tax and NIC position in respect of employment vs self-employment, we have gone too far down the road to reverse the trend. Clients and companies prefer the reduced risk for all sorts of reasons, not just in respect of PAYE compliance.

I don't think they understand the mess they have created and certainly don't have any answers to the problem.

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By johnjenkins
15th Mar 2010 12:31

Agenda?

Mr Brown has always had an agenda. It is quite simply to have his own (right, fair) tax system and to collect as much money from the tax payer as possible.

To come out with 300,000 subbies are conning the system to the tune of £350M does seem a bit wayward, but we are talking of Government estimates and we all know what that means.

As for "working together" or "consultations" I have always thought these to be a con. Does anyone think that the policy makers are actually bothered about what we think? By the time it becomes law it's too late to do anything about it so we are left with "how best can we make it work" even when its unworkable (CIS).

The only good thing from all this is "give Mr Brown enough rope and he'll hang himself" but by then it might be too late. I'm betting with myself as to which will fall first, Euroland or our economy. I certainly think 2013 will be the year it all happens. 

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By User deleted
15th Mar 2010 12:55

Construction industry.

 Gordon Brown is all about getting your money, fairly or otherwise, so he can spend it (and more!) as he KNOWS BETTER than anyone else. After all he saved the world. (Personally I think he is a serious case for the psychiatrists).

But coming back to it all, I thought IR35 and CIS solved (mostly) the tax collection and that is what it is all about, is it not?

South Africa uses a simple test:

Do you work > 80% for one employer Yes = employeeDo you have 2 or more employees No = employeeDo you control your own work No = employeeAre you registered for PAYE and VAT  No = employeeDo you work at your clients premises Yes = employee

Any two makes defines you as an employee then for tax purposes (note for tax only!) you are an employee.

There are specific exclusions (e.g. accountants) and some stated inclusions.

The test has been to the Courts who found in favour of Revenue.

Contracts and the like would not make you a contractor, however worded (Courts were scathing about those fake contracts which they found essentially as an attempt by employers to get out of employee benefits). However a poorly worded sub-contractor contract could make you an employee for tax purposes irrespective what the true situation is.

Lesson = HMRC always seeks the most difficult way of solving every minor problem and Revenue collectors worldwide are leeches.

 

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Nigel Harris
By Nigel Harris
15th Mar 2010 13:08

Gone full circle

Those old enough to remember will know that the original construction industry scheme was introduced in 1971 in order to collect tax from itinerant labourers who it seemed were incapable of being caught by the PAYE system. The deduction of tax at source by building contractors meant that the Treasury collected a decent chunk of revenue from a whole bunch of individuals that had previously evaded tax altogether. Those that registered as self employed were usually able to claim a tax refund, but quite a few didn't bother - which was not a big problem for HMTreasury as they had their money up front anyway.

So now the Government is blaming the construction industry for implementing a system that they, the Govenrment, introduced to protect tax revenues, and their solution is to go back to the system that didn't work before!

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By cymraeg_draig
15th Mar 2010 15:22

Gordon (McDoom) Brown is determined to destroy every sector of t

 

By making it virtually impossible to be classified as a sub-contractor and therefore pushing firms into taking on employees he will simply destroy the construction industry - or - as is more likely - vastly increase the size of the black economy as smaller builders start paying "back pocket". 

HMRC need to get out of their ivory towers and see how the real world functions. 

As for "consultation" - maybe someone should send them a dictionary - so they can look up the meaning of the word.

 

 

 

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By Nick Graves
15th Mar 2010 21:09

Gulag Archipelago revisited

Where's the free press in all of this?

Where's the pretence at democracy?

Where's the revolution?

Where's my passport out of here?

 

 

 

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By robert Garrod
15th Mar 2010 21:16

Cost of second state pension S2P

I compute that the costs of the second state pension to the department of work and pension is under £2,000 per annum for a lowest paid employee. If there are 300k false self employed then the cost to the DWP be £600m. for those people to become employees

Admittedly the costs not arise until retirement.

 

 

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By User deleted
16th Mar 2010 00:39

Mr Brown - do not be too hard on him. He has done his best.

I hate to hear all the carping that goes on about Brown.  He has done the best job he can in the circumstances.  He is not a stupid person; per the Wiki, "Brown has a PhD in HISTORY from the University of Edinburgh and spent his early career working as a television journalist."  He would have made a really great historian but instead dedicated his energies to running the country's finances, and recently had to take over the mess left by Blair.  So, do not be too hard on this man.  He has not had the kind of training and experience that he should have received for these positions and it is therefore very unfair to blame him for all the stupid changes made to our basic financial regulations while he was in those senior positions. 

Yes, we should have found people that were properly and formerly trained with the necessary many years of successful financial experience at the correct levels to run the country's finances.  Any engineer, doctor or other professionally trained person will tell you that NO ONE would ever, ever, ever put people in senior positions when they do not have the right qualifications, full experience and a successful, sound track record.  That would be really stupid for any business.  Suicidal!

But, what was Blair to do?  There was no one qualified to do the job and Brown's Phd in HISTORY was the best qual they had.  Not surprising that he crashed the whole monetary system, as we know it, bringing us to the brink where money was no longer usable and trading in fridges and things was almost the way to go.   We got off cheaply by trashing the mega sums of money stored up by our taxes.  Very cheaply...........how many hundreds of £billions???

The construction industry.....well it is all so new to Brown; very new to the studying he did for his Phd in HISTORY, years ago.  We shouldn't be surprised when the whole construction industry collapses with the madness proposed, with contractors having to pay tax/NICs for staff in other subby companies, and finding out they employ people they never hired.  Nuts, of course.  Sounds rather like the financial callapse, methinks. 

Hospitals, education, .... we will suffer similar psychotic results in all these fields with the wrong man at the wheel. 

Still he was teerful in that interview the other day.  Maybe we should give him another few years to look after our futures, eh?  Can't make more of a mess, could he?  I think he could and certainly will.

But, don't be so hard on Mr Brown.  We voted him in as part of a previous package, and voted him in again with the next package.  So you really have to point the finger of blame at your own forehead, if anyone is to blame.  

 

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By User deleted
16th Mar 2010 08:56

Let's go to war with HMRC

How about this. From now on whenever HMRC issues a proposal or consultation document the entire tax profession should completely ignore it. No response, no comments, not a thing.

Let HMRC get on and do what they want. They will anyway so let them get on with it.

Once they introduce further craxy laws ie. IR35 we should fight them all the way. Never mind making live easy for HMRC we should make life extremely hard for them. Refuse to speak to them on the phone, make them put everything in writing, delay all appropriate matters to the last minute, don't fax correspondence to the inspector because his postal system takes him weeks to receive it etc.

HMRC are the enemy intrepreting and making laws to extract the max possible from their 'customers'.

Never mind cosying up to them (ie. working together- abandon this entirely) let's fight them all the way in the best interests of our clients.

Only then might they actually consult rather than going through the motions.

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By Democratus
16th Mar 2010 09:03

to previous anon edit (previous previous) someone in faster than

I didn't.

I take your point though that we vote for incompetents to appoint incompetents and then re-elect the same incompetants, and wonder whose fault it is. It's still the Prime Minister's as he doesn't have to appoint one of his mates or enemies, under the guise of keeping your friends close and enemies closer to positions in the cabinet.

We need professional people running the engines of state and only allow the politicians to set the tone and direction.

Come the revolution i know which side i'll be on.

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By terry morris
16th Mar 2010 10:01

JUST ANOTHER ATTACK ON THE WORKING MAN

Last time this attack happened I lost some 18 contractors who were forced to go employed, the Inland Revenue (we were told) were to send out inspectors to enforce the rules.

To date 11 of my clients have returned after realising that not many inspections were taking place.

I wonder if this time the ruling will include large companies and councils etc. I still have British Rail and Council sub-contractors that are still in breach of the first ruling.

 

 

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By johnjenkins
16th Mar 2010 10:18

Get rid

Most of us want to get rid of Mr Brown. DC must know this but why isn't he saying anything.

All we get is "tough on crime" "kids choice of schools" "more doctors" "more bobbies on the beat" etc etc. I've heard this from successive governments but nothing improves. The only thing we can be sure of is house prices will rise so will taxes and MP's salaries. The rich will get richer (nothing wrong with that) and the poor will get poorer (there is definately something wrong with that).

DC should be challenging HMRC over the right to be self-employed. Does Mr Brown get up at 5 in the morning, travel along the M25, get to the place of work at 7 to be told sorry, as its raining and windy you can't work. So he has a journey back with no pay. No it doesn't happen all the time but this is what a lot of self-employed subbies have to put up with - its called taking the rough with the smooth. Is he going to do that under new rules? I don't think so. He will go on to the black economy.

So what's next for HMRC? As most of the "cash" comes from domestics it would follow on that all construction work over say £500 would have to be notified to HMRC on a suitable form with names addresses etc. Of course inspectors would roam the streets (perhaps that duty would be integrated within the traffic Wardens duties they could be re-classified as traffic and construction wardens) looking for extensions and the like and report back - even a knock on the door to see if any work had been done inside.

So come on DC the above might be said in jest however if Mr Brown gets in (even in a hung parliament) it could happen.

 

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By User deleted
16th Mar 2010 15:11

Stop the unfair building tax

The fact that the Government has acknowledged that more work needs to be done in order to address the issue of false-employment in the construction sector shows that the current proposals from HMRC are not workable. The Stop The Unfair Building Tax campaign ( www.sub-tax.com ) calls for a rethink of the proposed approach and for a halt to the current legislative process, which would not only unfairly single out the construction sector, but would also only add to the already significant burden on the industry.

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By johnjenkins
16th Mar 2010 15:53

Basics

The reason why any scheme doesn't work is because (a) the problem isn't as widespread as HMRC make out - if it was they would be inundated with money for the amount of effort they have put in. (b) The reason for the scheme to be set up is not there any more so by definition HMRC are trying to stop something that isn't there, and (c) The way in which CIS was originally set up was to have Contractors and sub-contractors. Some sub-contractors could possibly be main contractor s as well. HMRC can't then play about with something (in order to raise more money) that was working and wonder why it all falls apart.

Unfortunately HMRC do not trust the one man band self-employed. Mainly because they can claim expenses and pay less tax and nic than the employed.

There is, in my view, a basic right of every tax payer to make a choice of being self-employed or not. It should not be up to governments or HMRC to decide. If a tax payer wants to take a chance that should be their decision.

If Mr Brown had his way every tax payer would work for a few large companies which would make it very easy for him to control. That's probably his economistic socialist side showing.

If Maggie or Tony were to be against Mr Brown they would eat him alive. So where is DC?????? Oh yes making a name for himself with Trevor (I admire Trevor but lets face it he's no Piers Morgan). So what next? Mr Bwown with Wossie or perhaps Gordon on ice (thin).

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By cymraeg_draig
16th Mar 2010 23:17

johnjenkins

 So what next? Mr Bwown with Wossie or perhaps Gordon on ice (thin).

 

Posted by johnjenkins on Tue, 16/03/2010 - 15:53

 

How about putting him in the Big Brother House - then welding the doors shut.

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By johnjenkins
17th Mar 2010 11:52

Welsh Dragon

what with 4 poofs and a piano (wossies house band)

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By frankdavid
23rd Mar 2010 09:22

Easy answer ?

 I act for quite a lot of contractors and sub contractors. Some are in disguised employment some are genuinely self employed. With the current massive downturn in housebuilding many of them are either out of work or working for peanuts. Even those in disguised employment received no notice / redundancy pay / holiday pay or gold plated pension when they lost their "jobs", so much for employment rights in this sector.

 

The easy answer to this problem is surely to have a higher rate of deduction for subcontractors, say 30%, 20% would be treated as tax as it is now, the other 10% would be non recoverable notional NIC. Too easy ?

Or be really honest and abolish NIC for everyone and put it all on tax so that everyone would see what we really pay, bit to honest for the inhabitants of the Palace of Westminster.

 

 

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