UCATT's recent call for the abolition of CIS to end 'bogus self-employment' in the construction industry raises important issues.
There appears little evidence that HMRC's definition of self-employment, even if understood, is being enforced, so it is unsurprising that construction workers are taking the apparently financially attractive self-employed route - whether or not they are entitled to do so.
The risks are that the Treasury loses revenue, individual workers may have poor employment rights protection, and (as in a recently publicised case) inadequate accident insurance.
Companies offering umbrella services for temporary workers are (rightly) heavily scrutinised for compliance with legislation, so working through an umbrella company is a 'safe' way for an individual to work. We make sure they have appropriate insurance cover, remit tax and NI to HMRC, and thoroughly check the identity and right to work of those from overseas.
Compliant providers of umbrella services provide a valuable service for employers, the UK authorities, and temporary workers (who are able to claim legitimate expenses). It seems nonsensical that all the checks are in this area, while construction workers who could not realistically pass HMRC's self-employment 'tests' are being contracted on this basis without (so far, it seems) penalty for employers or workers.
The legislation is complex, and could benefit from the UCATT's proposed simplification. But if it is to be made to work in its current form, the rules must be applied equally effectively across the board. If claiming to be self-employed brings financial advantage with no checks or forfeits, can workers be blamed for taking this route?
Trudy Gordon, Managing Director, Gabem Management Limited
Comments (1)
I’ve commented on UCATTs call to end bogus self employment on the Crisis in Apprenticeships blog, so I won’t bore anyone here on that matter.
HMRC has clear guidelines on the definition of self-employment, but there is a difference between what tax professionals and HMRC officers believe are the crucial factors. It’s this difference of opinion that causes confusion, along with the disappearance of composite companies, which promised to make everyone self-employed, followed by the emergence of PAYE umbrellas, which promise tax savings and are almost indistinguishable, at least to the worker, from the old composites.
The CIS reform was designed to encourage contractors to look at the issue of employment status and to try to get it right. I speak to HMRC officers from policy level to local office, and there is no desire on their part to force everyone on the cards. So there are not going to be any public floggings on any great scale, unless you believe the UCATT line that everyone on CIS is in bogus self-employment.
PAYE umbrella companies when run properly are a great system, but there are two major problems which could turn round and bite both the contractor and the worker when a recruitment agency is involved.
The majority of workers being paid through PAYE umbrellas are agency workers, and agency workers are classed as employees for insurance purposes, of the contractor, not the agency or the umbrella. So the offer of insurance cover by an umbrella could leave a contractor under insured, if it fails to include payments to agencies when applying for insurance.
This is what gets me annoyed though, agency workers are not, and never have been, classed as temporary workers by HMRC, which makes the payment of many expenses, notably for travel, on a tax free basis disallowable. Being paid through a PAYE umbrella can leave an agency worker with a shortfall in tax paid at the end of the tax year, and as ignorance of tax laws is no defence, it’s the worker that will have to pay up.
HMRC should publish clear guidelines on expenses that are deductible, so that workers can instantly tell when an umbrella company is safe. It's this information which is not in the public domain - yet.
Posted by Carolyn Walsh | July 18, 2008 12:32 AM
Posted on July 18, 2008 00:32