Schemes now appearing in Construction Sector to Circumvent HMRC’s new Disguised Employment Anti-Avoidance Rules.
The Government’s new rules to tackle the false self-employment of construction workers and agency ‘temps’ entered into force on 6 April 2014, but were swiftly followed by headlines such as ‘New model tries to duck false self-employment rules’ in the recruitment industry press – suggesting that attempts are already being made to circumvent them.
The new rules essentially deem all construction and agency workers to be employees for tax purposes unless they can actually show they are not under control, direction or supervision and can provide evidence of this. If they cannot do this, their wages will be subject to PAYE tax and NIC. Similar rules existed before 6 April 2014, but some agencies and other intermediaries were using contrived arrangements to sidestep them and pay their workers gross. This was causing employees to underpay both tax and NIC, thereby depriving them of entitlement to benefit, and the Exchequer of revenue. In a system characterised by its piecemeal approach to avoidance behaviour, it seems that, true to form, schemes have been created to exploit both of these weakness in the new rules. Based on limited information gleaned from various providers’ websites, there are two ‘workarounds’ currently in the offing:
- A construction industry specific scheme focused on questions around the fundamental element of ‘control’ (a concept open to interpretation)
- For non-construction industry schemes, a ‘hybrid’ scheme where the workers are employees for tax purposes (so PAYE/NIC is deducted in accordance with the new rules) but self-employed for employment law purposes, thereby avoiding auto enrolment, National Minimum Wage and other forms of worker protection..
As always, only time will tell as to whether these schemes will actually survive a challenge by HMRC.