Employment Status Enquiries in the Construction Industry
Amendments made in 2014 to Section 44 of the Income Tax Act 2003 may soon be taxing the brains of construction company owners across the UK, leaving some having to pay substantial bills for workers they have treated as self-employed. Data released by the Office of National Statistics recently showed that 4.7 million of us here in the UK are classed as self-employed. Self-employment increased sharply during the economic crisis as budget deficits rose and austerity politics became the norm.
If the government can convert a self-employed person to employee status, it would receive employer national insurance contributions for that employee. Converting 1 in 10 self-employed people to employee status would bring in an extra £1.5 billion each year so it’s easy to see the government logic behind this move. Trade unions are also motivated to challenge what has become known as “false self-employment” as they are keen to see more workers classified as employees because of the legal benefits provided by employment rights. This means that it’s vital for construction companies across the UK to make sure they are prepared for the change
This summer HMRC took on a thousand key caseworkers in order to launch an employment status and intermediaries team to promote its focus on compliance. HMRC has published guidelines which demonstrate where construction companies may find themselves classed as an agency under the 2014 legislation changes and this classes them as employers for income tax purposes. HMRC now has all the tools it needs to challenge self-employment and employment status enquiries are predicted to increase in the future.
Many people within the construction industry have adopted a complacent attitude towards the legal changes, probably because working status investigations take a long time to process to conclusion and many have been settled in the pre-tribunal stage, leading to a false sense of calm about this issue. However, the average employment status enquiry takes up to two years to be resolved, leading to defence fees of up to £20,000 in some cases. If a subcontractor does get reclassified by HMRC there will be additional employment costs, including holiday pay, sick leave, workplace pensions and national insurance contributions.
Despite all of this, there is still an argument being made that construction companies don’t need to take the issue of worker status challenges seriously. Nothing could be further from the truth! HMRC’s new employment status team means that it has the resources necessary to tack this issue effectively and false self-employment is firmly in the government’s sights. About 6 million people here in the UK are not covered by the standard array of workplace rights and this number is growing as rapidly changing business models and working practices continue to stretch our employment rules to the limit.
The Business, Energy and Industrial Strategy Committee began in enquiry into the future world of work in October with focus on the status and rights of agency workers, casual workers and the self-employed for the purposes of tax, benefits and employment law. Employers in the construction industry can expect to be firmly in the spotlight in the coming year as ministers commit to taking action in cases where companies force staff down routes that deny them the employment rights and benefits they are entitled to in a bid to reduce costs.