I am writing in response to the article entitled “PAYE Workers Cost O’Rourke Contracts”.
The Government initiatives to which the article refers took the form of HMIT (the Inland Revenue in its days before the merger with Customs and Excise) writing to construction firms advising them that if they put all their workers on the books from a given date then it would not seek to collect any liabilities relating to earlier tax years which might arise as a result of the construction firm treating its workers as self employed where they should really have been taxed as employees.
A number of construction firms took the decision to reclassify their self employed workforce as employees but many more continued to pay them as self employed and this clearly gave those firms an advantage over those who decided to employee their entire workforce.
However surely all of this does is create a competitive market place. No one forced the construction firms to reclassify the status of their workforce and any company which engaged workers on a self employed basis did so in the knowledge that HMIT was always likely to review the status of their workforce and if they found that the workers were actually employees then the company would be liable to very significant amounts of tax, national insurance, interest and penalties which in some cases could result in the company going out of business.
As a consequence it was very important for firms to get status right, and ensure that the workers taken on as self employed were indeed self employed with their terms and conditions complying with the criteria established by law and caselaw. Surely under these circumstances there is no unfair advantage to be gained, and any company, could have engaged workers under terms and conditions which would have satisfied the criteria for self employed status, had it so desired.
Criteria for determining whether or not a worker is self employed has been well established for a number of years and where agreement cannot be reached between the authorities and the taxpayer, the Courts have been perfectly able to decide the case, sometimes in favour of the authorities and sometimes in favour of the taxpayer.
Mr Prior’s article refers to statistics which were included in a report by Professor Mark Harvey of Essex University on the subject of the “The Evasion Economy – False Self Employment in the Construction Industry”. Many of the assertions made in the treasury consultation paper appear to have been directly influenced by this report and yet in an independent review of this document by Susan Kirk of Nottingham Business School (Nottingham Trent University) it was found that “this report is written in a pejorative manner with a number of influences and statements made without supporting evidence. The source of the statistics is not always evident particularly those that purport to derive from the labour 4 survey 2007. The emotive language used and lack of substantiation of assertions made has led to a report that lacks persuasiveness and objectivity. There are numerous instances of the use of judgemental terminology and unsupported comments”.
The UK construction industry can be characterised as a cyclical business exposed to a volatile market with short term time limited contracts which require a highly mobile and flexible workforce. Needless to say in the current economic climate demand in the construction industry is currently deeply depressed.
The origin of self employment in construction is a function of the industrial cycles and process and it is not borne out to a desire to avoid tax and NIC contributions.
Enterprise is a significant feature in the construction industry. Many successful building firms can trace their origins to self employed sole traders who grew into the businesses we recognise today. The proposals in the consultation document to which this article refers will severely reduce the opportunity to future generations to set up in business and expand it accordingly.
Mr Prior’s article appears to focus on a perceived unfairness to construction workers by being treated as self employed whereas really they should be employees. It does not mention any perceived unfairness to construction workers who may be forced to become employees because of this new campaign by HMRC whereas what they would prefer would be to be self employed, be their own boss and therefore make their own decisions concerning how and when they undertake their work. Some may wish to build a business for future generations rather than be an employee on a permanent basis and have nothing to pass down or sell on once they retire.
The new construction industry scheme which took effect from April 2007 requires contractors to sign a monthly declaration that they have satisfied themselves that all self employed workers engaged by them are genuinely self employed. There are severe penalties which can be charged by HMRC where this declaration has been incorrectly made. Surely the best and most fair way forward would be to continue with the well established laws concerning employment status and for HMRC perhaps to increase the resources devoted to policing the system so that construction companies who engage workers who are genuinely self employed may be allowed to continue to gain a competitive edge, where possible in an ever competitive market place and construction companies engaging self employed workers who are actually employees will be found out by HMRC and forced to pay the price for non compliance.
If any changes are to be made to the current regime in determining self employed status then surely in the interest of fairness these rules should be applied to all self employed workers and not just those in the construction industry. It was widely reported in the press last week that this type of problem exists within the BBC and it has been known for years that IT workers also have the shadow of false self employment hanging over them. I have not yet found anyone who can explain to me in any way shape or form why a particular set of rules should be applied to construction workers but not to all other workers within the UK.
As Mr Prior finishes in his article “what a ludicrous way to run a major industry like construction - I think he and I can agree on this point, but for somewhat different reasons!