What has become of HMRC's ideas of tackling what was claimed as "False self-employment" in the construction industry?

"False employment" hit the headlines in 2009 when HMRC launched a consultation document proposing measures for tackling what it perceived as a major problem in the construction industry.

The issue has not gone away, thanks largely to a combination of a stream of press releases from HMRC in tracking down misclassified agency workers on contracts for the Olympics combined with a highly vocal trade union; UCATT (the Union of Contruction, Allied Trades and Technicians) keen on promoting employment rights and apprenticeships and a recent campaign by the Daily Mirror (for employment rights) which has attracted further union support.

Chartered Accountants and Advisers Francis Clark this week held a recent conference for clients and guests in order to examine the current state of play. The firm commissioned barrister Anne Fairpro to analyse HMRC 2009's consultation on false self-employment in the construction industry and examine the wider issues.

Ms Fairpro found that the 2009 report was based on a somewhat biased report orginally created for the trade union UCATT and that its use and later HMRC's use of statistics were unreliable:

  • It was claimed that over 300,000 workers were being deliberately misclassified as self-employed. HMRC based this figure from tax returns where workers did not claim materials.
  • It was claimed that the practice of mis-classification of employment status was rife throughout the industry; she pointed out that HMRC had only succeeded in winning 1 case out of 4 in recent years (Wright, MAL scaffolding, Castle Construction and JL Windows and Doors). The one that it did win (Wright), there was obvious evidence of dishonesty by the employer.
  • HMRC proposed that going forward, workers could be automatically deemed as employees if they did not provide their own: plant and machinery, materials or workers.

The 2009 consultation united the industry which felt unfairly victimised. Ms Fairpro concluded that HMRC had wrongly decided that that it had a problem without fully evaluating the evidence that it had.

What now?

HMRC continues to check the employment status of workers, and notably ensuring that agency workers are appropriately classified. This is a potential problem for any industry and is not limited to construction workers.

The Office of Tax Simplification has made its recommendations on IR35 (another measure designed to tackle false self employment by the use of an intermediaries). It was announced in the 2011 Budget that HMRC is going to update its guidance and improve its employment indicator tools.

Speaking at the Francis Clark conference was broadcaster and ex-MP Michael Portillo, he explained that in economic terms the UK needs the self-employed in order to support growth, and the use of foreign workers and a flexible workforce all serve to assist in keeping down wage inflation. His view appears to be that in the light of the current economic conditions Government it seems is unlikely to introduce measures that have the potential to cause mass unemployment in any industry.

When the audience at the conference was asked on their view of employment status tests the consensus amongst employers representatives from industry appeared to be in favour of a test based on financial risks/rewards. That might prove "food for thought" going forwards as HMRC develops more tools to assist employers.