Contractors warn about high cost of new tax plan

Tax office plans for a new law to switch 300,000 self employed workers onto PAYE will drive up costs and push workers into the cash-in-hand black economy.

That is the warning from contractors who have branded the move a construction tax-take.

The law proposed by HM Revenue & Customs (HMRC) would presume all workers are PAYE from the outset, unless their employer verifies they provide materials, tools or employed other workers.

Contractors, who are responding to a government consultation before a mid-October deadline, said the tax raising measure would have a serious knock-on effect.

One company director said: "We are in danger of creating a third status of employment, where workers are deemed PAYE for tax purposes, but do not receive full employee benefits."

The move will drive up employer costs and is expected to anger out-of-pocket workers.

HMRC estimates it will raise an extra £350m for the Treasury.

Construction has been singled out because 34% of the workforce is self-employed, against a UK average of 11%. Construction union UCATT has also lobbied Government to abolish bogus self-employment.

The director of a dry-lining firm said: "I can't believe this. I recently decided to buy plasterboard centrally because I can negotiate a better bulk price. But by doing this I am pushing a team of self-employed dryliners into direct employment under the plan."

Gareth Vaughan, director at ductwork contractor E Poppleton, said: "This looks like the government has something against blue collar workers in construction.

"If this law was applied to all industries, many of the government's own freelance consultants and advisers would probably have to go PAYE."

Angry contractors have backing from accountants and labour supply agencies.

Nigel May, tax principal at MacIntyre Hudson, said: "The reality of this damaging proposal is that a number of legitimately self-employed workers will be socially engineered into deemed employment status.

"Most worrying of all is the Government's false assumption that the high level of self-employed workers should automatically be treated with suspicion when it is a simple reflection of how the industry operates."

David Jackson, director at payroll specialist Hudson Contract, said: "It is one thing raising a bit of tax and countering some people who might be falsely self-employed, but this is a blanket approach that hits the legitimately self-employed as well as those deemed by HMRC as falsely self-employed.

"There has been too much change in the system. We already have well-established tests in law to determine self-employed status. Why reinvent it yet again?"

Despite growing concern, the industry is divided about the plan.

Liz Bridge of the Construction Industry Joint Taxation Committee said many trade bodies were in support of the proposed deeming legislation.

"For the firms that have been bitterly complaining about being undercut by rival firms using falsely self-employed this levels the playing field. This may increase costs for some but it has little impact on those directly employing their workforce."