The construction industry is already experiencing tough times. Yet the draft Finance Bill published yesterday will increase labour costs for the sector from 6 April next year, by targeting “self-employed” temporary workers supplied through intermediaries, generally as a means of avoiding tax. The new rules will also have an impact on Employment Agencies.
The Bill aims to tackle the large scale tax avoidance that has come about through the use of marketed schemes for disguising employment as self-employment. The agencies which provide these schemes (in return for a fixed weekly or monthly charge) route income through intermediaries both offshore and onshore. The result is a substantial loss to the exchequer in terms of PAYE and NIC payments. Such schemes are particularly common in the construction sector.
PAYE and NIC rules currently don’t apply to temporary workers if the worker is not obliged to provide a personal service, on the basis that a self employed worker finding work through an agency is still self-employed and should be taxed as such. From April next year, workers supplied by an agency will be treated as being employed by that agency if he is involved in the provision of his services to an end client who has the right to supervise and direct the work. The payment for his services will have to be payrolled meaning that the worker will have tax and employee NIC deducted at source and the agency will become liable for employer NICs.
The change is not intended to affect genuinely self employed individuals and those operating through personal service companies where the nature of the relationship between the worker and the end client does not have the characteristics of employment.
The government estimates that next year, 200,000 construction workers and 50,000 other self-employed workers will come into PAYE, raising the tax and NIC take by approximately £520m.
Businesses that are currently engaging workers via an intermediary may want to review their arrangements to ensure that the intermediary will be fully compliant with the new legislation. Likewise businesses that provide workers to end users will also need to consider how the new rules will impact their business models.