Building contractors face tax crackdown

Published 08th Oct 2009

A Government proposal to reclassify the income of self-employed construction workers so they pay income tax on a pay-as-you-earn basis will result in extra tax payments worth hundreds of pounds and a “huge administrative burden” for the companies that employ them.

Tax experts said that a consultation on the problem of false self-employment in construction ending on Monday is likely to result in the ruling, which will affect a large number of contractors in an industry that relies heavily upon self-employed labour.

Following the change, a worker earning £30,000 a year would be subject to an extra bill of £603 for National Insurance Contributions (NICs) at 12.8 per cent.

However he or she would not receive any benefits packages that typically come with employment, such as statutory holidays, pensions or private healthcare.

Adam Craggs, a tax dispute solicitor at Reynolds Porter Chamberlain (RPC), the law firm, said: “HMRC has been challenging the self-employment status of construction workers for many years and has taken a number of cases through the tax tribunal with very little success.

“Now it seems that HMRC wants to move the goal posts by introducing legislation to increase its tax receipts from the sector just as the construction industry is struggling to stay on its feet during the recession.”

The Government launched the consultation in order to ensure that construction workers who are “engaged in an employment relationship” are taxed appropriately.

However, RPC said that the criteria for being considered self-employed were too strict and did not take into account the specific nature of the industry, where workers are hired for a specific project for a company for a set period of time before finding work elsewhere.

The criteria for retaining self-employed status would be that the contractor must supply all plant & equipment, all building materials, and employ all additional workers.

RPC said the decision would also affect the agencies that hire contractors on behalf of construction companies.

Sources in favour of the move said that it granted extra protection for contractors who might not make provision for retirement by guaranteeing payment of NICs.

The consultation document, which was quietly slipped out in July, said: “Evidence suggests that there are a substantial number of workers in the construction industry working under employment terms who are presented as self-employed. Previous attempts to address this problem, for example, through compliance activity, have been unsuccessful.

"The Government has concluded that the best way to address this issue for income tax and NICs purposes is to introduce legislation.”

A spokesman for the HMRC said: “The Government has confirmed that it would work with the construction industry to ensure that any legislation was targeted and that the industry retains a flexible labour supply.”

Source: ' Building contractors face tax crackdown '

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