It is well-known that many workers in the construction industry are treated as self-employed for tax and employment law purposes whereas the reality is that they are employees.
“Employers” of these people are reluctant to pay Employers’ National Insurance Contributions and do not want to be burdened with the employment protection which is available to employeees.
In 2000 the Government introduced IR35 which was described at the time as a way for the Revenue to tax contractors “as though they are employees”. For those caught out the tax penalties were often very severe.
However, many people who are undoubtedly employees for both tax and employment law purposes are still being treated as self-employed contractors. It was therefore no great surprise that in this year’s budget the Government announced that it remained committed to the problem of “false self-employment in the construction industry” and proposed new legislation to tackle the problem head on.
The Government has recently issued a consultation document which is called “False Self-employment in Construction”. As a result, we can safely assume that the consultation is not about whether the problem exists. Rather, the Government is obviously fed up with the way in which people in this sector continue to classify themselves as self-employed when plainly they are not.
As a result the Government is going to turn the tables by starting from the premise that payments made are “deemed income” unless the paying and receiving parties can demomstrate otherwise.
The issue is significant from an employment law purpose because, although an individual can be an employee for employment law purposes and self-employed for tax purposes, if a person is classed as an employee for tax purposes this is a strong indicator that they will also be treated as an employee for employment law purposes.
The consultation closes on 12/10/09.