Self-employment in the construction industry
This note gives some background to the question of employment status and the difficulties it has caused in the construction sector, before discussing initiatives by both the Labour Government in 2009 and the Coalition Government in 2014, and more recent debates as to the possibility of a longer-term solution to this issue.
The question whether someone is employed or self-employed is an important one, both in relation to tax, and to an individual’s rights in employment law. For some years there have been concerns about the scale of ‘false self-employment’ in the construction sector: individuals engaged on the basis that they are self-employed, but who are working under employment terms.
Employers classifying workers this way may avoid being charged National Insurance contributions (NICs) on the earnings they pay. Individuals may also make a tax saving, although they may be unaware of the benefits they will lose from not being classed as an employee (such as their rights to sick pay.) In the 2009 Budget the Labour Government announced that it would “consult with a view to future legislation to ensure that construction workers and those they work for are taxed appropriately.”[1] A consultation document was published in July that year. The proposals proved quite controversial and were not proceeded with.[2]
More recently there have been concerns about intermediary companies exploiting these rules, disguising the nature of the contract for workers they place with employers, and, in some cases, sharing most if not all of the financial benefits with the employer, with little benefit for the individual worker. Following consultation, in the 2014 Budget the Coalition Government announced measures to tackle the activities of employment intermediaries avoiding tax, either by being based offshore, or, of particular relevance to the construction industry, by disguising employment as self-employment.[3]
Over the last three years there has been a much wider debate about self-employment, particularly in relation to the ‘gig economy’, and whether the tests for determining employment status should be reformed.[4] There has also been debate as to whether the different tax treatment of income from self-employment compared with income from employment is fair, leading to the Government announcing in the March 2017 Budget major reforms to Class 4 National Insurance contributions (NICs) paid by the self-employed. In the latter case, the then Chancellor Philip Hammond withdrew these proposals several days after the Budget, and subsequently the Government has stated that it has no plans to revisit the issue.[5] In February 2018 the Government published its response to a review of working practices it had commissioned from Matthew Taylor, and as part of this, launched a consultation on employment status.[6] The consultation looked at employment status both with regards to employment law and tax, but did not consider any changes to the rates and reliefs for either income tax or NICs.
On 17 December 2018 the then Secretary of State Greg Clark announced a series of reforms to amend workers’ rights;[7] as part of this Mr Clark confirmed that the Government would “bring forward detailed proposals” to align the frameworks for defining employment status for employment and for tax.[8] However, since then no further details have been published.
Notes :
[1] Budget 2009, HC 407, April 2009 para 5.114
[2] The 2010 Budget report simply stated that the Government “remained committed to addressing this problem” (Budget 2010, HC 451, March 2010 para 5.94). Details of the consultation are collated on the National Archives site.
[3] HM Treasury, Overview of tax legislation & rates, March 2014 para 1.55-6. Provision to this effect was made by ss16-18 & s20 of FA2014. It was estimated these changes would raise £80m, and £445m, in 2014/15, respectively (Budget 2014, HC1104, March 2014 pp58-9 – Table 2.2 items s & bb).
[4] see, Employment status, Commons Briefing paper CBP8045, 28 March 2018.
[5] see, National Insurance Contributions (NICs) and the self-employed, CBP7918, 14 December 2018
[6] Details are on Gov.uk. The consultation closed on 1 June 2018. See also, PQ182669, 29 October 2018
[7] HC Deb 17 December 2018 c572-4; see also, Department for Business, Energy & Industrial Strategy press notice, Largest upgrade in a generation to workplace rights - getting work right for British workers and businesses, 17 December 2018
[8] See also, HM Government, Good Work Plan, December 2018 pp25-9