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.”
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