HMRC attacks construction industry workers

Towards the end of July HM Revenue & Customs published one of their famous consultation documents. I say “famous” because we have had quite a number of them in the past couple of years, and for the most part HMRC takes little or no notice of the opinions of tax professionals and other interested parties before doing for the most part what they always intended to do. The exception to all this was the major changes in the taxation treatment of trusts from April 2008, where HMRC should have had a consultation, but chose not to, blind-siding everyone with an attack on trust principles going back centuries.

It was clear that HMRC, or at least the Whitehall Mandarins, understood trusts not at all, thinking of them only in the context of tax avoidance. Trusts are generally just a way of preserving property for the benefit (usually) of others including children and grandchildren, and the idea goes back to the time of the Crusades. Anyway, I digress, but the point is that HMRC seems obsessed with their belief that there are bunches of scoundrels out there who should be paying more tax. This may of course be driven by a false sense of fairness, though there is also the likelihood that they want to get every penny they can because of Government spending and borrowing, and the general fall in tax revenues as a result of the recession. Of course there are dishonest people, but why use a sledgehammer to crack a nut, causing collateral damage to decent people?

So to the attack on the construction industry and in particular on subcontractors. Subbies, as they are called, are skilled workers and labourers engaged by main contractors or other subcontractors who work on building sites on the whole, and the term includes everyone who works on a building job from the people who clear the site, dig foundations, fit the plumbing and electrical circuits, through to the people who clean up new builds and attack the remaining dust with a vacuum cleaner.

HMRC thinks that many of these people should be treated as employees. The motive is because higher National Insurance Contributions are recovered from an employee and his or her employer than is levied on a self-employed person, who incidentally gets far fewer benefits from his limited contributions and no benefit whatsoever from the 8% rate of so-called Class 4 NIC which is effectively a tax on income and nothing else. The other motive for this attack must be that self-employed people can claim more in the way of expense deductions including usually travel and other sums expended that have to be “necessary” -in addition to being incurred wholly and exclusively- to gain a deduction for an employee. That word has led to a lot of argument in the Courts over many years.

There is ample case law to distinguish between an employee and a self-employed person going back many years. I have no problem with HMRC's general interpretations on this web page. One can see that to be an employee, an employer must have a degree of control over the worker and a degree of responsibility too. The hours worked will be decided by the employer, as will permission to take time off.

I can see a sort of case that some unskilled labourers might be casual employees if they provide nothing except their physical presence and hard graft; some of them. However, the idea that my plumber, brickie, electrician and carpenter clients are not self-employed seems to me absurd. The HMRC consultation paper, called 'False self-employment in construction: taxation of workers' says, at least to my mind, some quite absurd things:

“In order for the employment income deeming rule not to apply, the worker will need to meet one of the following criteria:

• provision of plant and equipment – the worker provides the plant and equipment required for the job they have been engaged to carry out, disregarding tools of the trade which it is traditional for a worker in the industry to provide for themselves to do the job
• provision of all materials – the worker provides all materials required to complete a job or
• provision of other workers – the worker provides other workers to carry out operations under the contract and is responsible for paying them.”
  

With the greatest respect to HMRC, this is tripe. It is tripe written by an employee in an office in HMRC towers who receives a salary every month, more or less knows that he or she will still have a job next year, the year after and the year after that, and a fat pension when the time comes.

Firstly, to deal with the HMRC bullet points, most brickies, well all brickies, provide the tools of their trade. As I have seen suggested, should each brickie also bring his /her own cement mixer every time in order to fulfill the “plant and equipment” criterion? Should the brickie really bring his own materials to mix the mortar? Of course the brickie may bring a mate to work if the contractor is shorthanded, and may even send someone instead, but that is not common. However not supplying other workers does not make the brickie an employee. After all (please note HMRC tripe-writer) a brickie may have no work next week or the week after, and certainly no certainty of work next year. It is worse than normal because there is a recession. Some of my subbies' telephone bills are high this time round because they are telephoning main contractors, trying to find assignments and projects to work on. One of my plumbers has been out of work for some months recently. Also, some projects have stopped half way through through lack of finance. There is no certainty of work, and just imagine the impact on the big construction companies if they suddenly found they had loads of employees. The cost would see them out of business and the Government's housing targets an even more distant pipe dream.

So let us have some common sense. It is evident that most construction workers are not employees. They can choose their own time off, but they cannot have certainty as to when and where their skills will be engaged. Has not HMRC not got something better to do than overturn established principles of case law and potentially land another crippling blow on an already sick construction industry? Answers on a postcard to HMRC by 12th October 2009.

© Jon Stow 2009

HMRC and customer service

I wrote recently about Government and in particular HMRC disenfranchising the non-technical population. It is a sad situation, and it means that some perfectly intelligent people and in particular those of an older age group, or perhaps those who work with their hands have to employ people like me to do tasks with which they could have coped if dealing in paper.

Because there is almost no one in HMRC with whom the ordinary population can speak who actually knows anything about tax, taxpayers just have to grub along or pay someone else. It gets worse as demonstrated by a visit I made to an older couple this week. Their problem was that another elderly relative had died and they had been left to administer the estate. They had been sent a Form R27 which, for the uninitiated, is a Return of income for the previous 6th April up to the date of death of the deceased, and which is completed by the Executors or Administrators of an Estate. The couple had filled in the form but missed out completing two sections. An Assistant Officer at HMRC had sent it back with the two sections marked with red crosses and asked the worthy couple to complete the details required. Of course they dud not have a clue which is why they had telephoned me.

Now in the good old days these Executors could have taken their papers and the form to the Tax Office and had help completing the form on the spot. Nowadays, even if they could find the person who penned the red crosses, he probably would not have had a clue either, which is why after a couple of months he returned the form with such an unhelpful letter.

I reckoned the repayment due to the estate was less than £100, but the couple had not collected all the information needed to fill in the R27. I dictated letters to the organisations concerned, which the wife took down in shorthand, and said that when they had received replies they would be able to complete the form and send it off. If they were still unsure they should call me.

I came away feeling unable to bill for my 45 minutes plus the short drive. I had done the tedious Money Laundering check because that is obligatory but by the time I had done an engagement letter, written the letters myself and dealt with HMRC I would have done far more work and costs would have far exceeded the refund due to the very small estate. Effectively I had to treat it as charity work.

HMRC calls taxpayers customers, but customer service has become an alien concept. When I was a young tax junior you could track down anyone in the Revenue and get things sorted out over the telephone, which is no longer possible with the call centres.

Why should I have to do for nothing something HMRC cannot be bothered to do because it has changed itself into an even less friendly organisation than BT or my bank? Yes, those who cannot afford to pay for representation can go to TaxAid, but why should they have to, and though I am happy to help out, I think we tax advisers and agents are taken for granted and not afforded proper respect by HMRC. However, if they treat their customers like that, what do I expect?

© Jon Stow 2009

Stirring the pot

I watched with interest the interview on the Accountancy Age website with Dave Hartnett, Permanent Secretary for Tax about the New Disclosure Opportunity (NDO). To quote HMRC,

“the NDO will allow people with unpaid taxes linked to offshore accounts or assets to settle their tax liabilities at a favourable penalty rate. It will run from the 1st Sept 2009 until 12 March 2010.

If you have unpaid tax linked to an offshore account or asset to declare, to benefit from the terms of NDO you will need to notify us AND disclose (tell us the details, calculate the amount due and make a full payment) within a set time limit.”

There will be a specific lowered rate of penalty for those coming forward under the scheme. It is not an amnesty in that tax, interest and penalties will have to be paid; it is simply that the penalty will be fixed at 10% unless people had a letter from HM Revenue & Customs under the original Disclosure Opportunity and passed it up, in which case the penalty will be 20%.

The original opportunity for those with undeclared and taxable offshore income to come forward was in 2007. This followed legal action through which British banks holding their customers' money offshore were effectively obliged to disclose details of the relevant accounts as they have done for many years in respect of UK based accounts. HMRC wrote to the bank customers they thought might have undeclared accounts. This time round, HMRC will write to many more people since they have information from many more banks.

In the interview, Mr. Hartnett admitted that he had no idea of the number of people would come forward or the amount of money which would be recovered. This was an honest reply. We only gleaned that he thought it would be more than under the previous scheme. Pressed on the criticism that the earlier campaign was under-publicised he said that around £1M would probably be spent in advertising and initiatives. I wish HMRC luck with this trawl and will have no sympathy with those continue to evade tax. I will be happy to assist anyone who wishes to come clean.

The NDO is not the only trawl in which HMRC is currently engaged. Many possibly non-tax payers or marginal taxpayers will have received letters in the last couple of weeks asking whether they should still be receiving their bank interest without deduction of tax.

Those recipients I know about actually receive their interest net of tax (and pretty paltry interest it is at current rates), but although some have been happy just to refer the printed note to me, one very elderly lady became convinced HMRC were after her and would take away her pension. That second reaction was extreme, but I cannot help thinking that the distress caused be this second mailshot to people on low incomes will far outweigh the concern of the generally much wealthier recipients of the NDO letter. I am not sure anyone in HMRC will have thought about that and I am sceptical that any significant tax will be raised by this mailshot to the poor and elderly.

© Jon Stow 2009