George Osborne used his Autumn Statement last week to launch a £400m crackdown on companies using intermediaries who 'dress up' employment as self-employment to avoid tax.
The chancellor said that legislation – probably Section 44-47 of ITEAP 2003 - would be changed so that HM Revenue & Customs can stop the avoidance of both employer and employee NIC.
The change, which will be fleshed out tomorrow, will hit employment intermediaries whose “contrived contracts” make out workers they engage are self-employed.
The Treasury said: “The government is acting now to level the playing field so that companies cannot use employment intermediaries to disguise employment as self-employment and thus avoid employment taxes and deny employment rights to their workforce.”
The intermediaries in the crosshairs are on-shore; often used by high paid workers - not just the low paid - and appear to be prevalent in the construction industry, according to status expert Kate Cottrell.
“This is a new [attack on] a self-employed model where an intermediary steps in between the client and the worker,” she said. “Sometimes agencies are involved but often they are not.
“About 400,000 people in the construction sector are falsely self-employed…[often because] the scheme promoter persuades the client to take their workers off PAYE and move them over claiming there are no risks.”
To head of this “facilitating” off false self-employment, existing rules will be “strengthened” so the correct tax and NICs are paid where the worker is employed, from April 2014.
Reflecting on this wording from the government, a law firm said it suggested that “minor tinkering” to a current framework was intended, the detail of which is due on Dec 10.
Roger Sinclair, legal consultant at Egos added: “It will be interesting to see what exactly is planned, [but the wording] suggests that genuine self-employment is not to be challenged.”
The Treasury is in line, saying fake self-employment is the target: “The tax system should continue to recognise the additional risk someone who is genuinely self-employed takes on.”
The PCG welcomed the recognition - saying that while officials are right to tackle fake self-employment, “legitimate” self-employment must be left outside of the measure’s scope.
“Any measures designed to tackle false self-employment [have to be] targeted appropriately and selectively,” the group said, so they “do not affect genuinely self-employed people.”