False self employment

The Low Incomes Tax Reform Group (LITRG) has noticed that schemes to circumvent new false self-employment rules are already starting to appear since the Government’s new rules to tackle the false self-employment of construction workers and agency ‘temps’ entered into force on 6 April 2014 according to Harris & Co accountants Northampton, the specialist small business accountants.

The new rules essentially deem all construction and agency workers to be employees for tax purposes unless they can actually show they are not under control, direction or supervision and can provide evidence of this. If they cannot do this, their wages will be subject to PAYE tax and NIC.

The LITRG had earlier warned of weaknesses in the new rules, in particular, that construction industry workers are often skilled and experienced from young, therefore not requiring ‘control, direction or supervision’; and that the deeming proposals were only in respect of a worker’s tax and NIC position and would not confer the enhanced employment law rights and protections enjoyed by an employee.

It says that ‘true to form, schemes have been created to exploit both of these weaknesses in the new rules’ and identifies two ‘workarounds’ currently in the offing.

The first is where a construction industry specific scheme focused on questions around the fundamental element of ‘control’, which is a concept open to interpretation. The second ‘workaround’ involves, for non-construction industry schemes, a ‘hybrid’ scheme where the workers are employees for tax purposes (so PAYE/NIC is deducted in accordance with the new rules) but self-employed for employment law purposes, thereby avoiding auto enrolment, National Minimum Wage and other forms of worker protection.

The LITRG foresees that ‘in due course, there will be further new rules to counter these developments and in turn, new schemes to “duck” the new rules. In the meantime, low paid workers will continue to get caught up in the ensuing mess.’ It adds that ‘the whole area needs to be reviewed from scratch.’

More details are available here.