Osborne confirms clampdown on bogus self-employment

George Osborne confirmed plans to crack down on tax avoidance in this week’s Budget, including moves to tackle bogus self-employment that are likely to significantly increase costs to contractors.

According to the Treasury around 300,000 workers in the construction sector are in bogus self-employment, costing HMRC more than £380m.

Under the current practice, agencies or middlemen provide self-employed workers on a site, meaning such workers avoid PAYE (Pay as You Earn), the system HMRC uses to collect income tax and National Insurance from employees.

As a result, the workers are substantially cheaper, improving the margins of subcontractors and main contractors.

This week chancellor confirmed plans, unveiled in the autumn statement in December, to clamp down on tax avoidance and aggressive tax planning, including bogis self-employment, with the measures to take effect from April 2014.

The Budget document stated: “The government will amend existing legislation to prevent employment intermediaries being used to avoid employment taxes by disguising employment as self-employment.”

The measures will be included in the Finance Bill.

The UK Contractors Group (UKCG) had called on the chancellor to delay the introduction of the new rules until January 2015, arguing that it supports reform but that “the industry needs time to factor in the changes”.

This week UKCG director Stephen Ratcliffe said the industry would be “disappointed” by the announcement.

He said: “UKCG supported the principle but had asked its introduction was delayed so that costs did not rise on contracts where the price was already fixed.”

Liz Bridge, secretary of the Construction Industry Joint Taxation Committee, said the new rules will force contractors to put up prices.

“People are genuinely frightened because they’re only just coming out of a recession,” she said.