Constructing Excellence
Aug 28 2009 Chris Leslie, Tax NetWorks
THE “deeming” of employment income provisions is experiencing a renaissance as HM Revenue & Customs (HMRC) look for a viable alternative to countering “false” self-employment in the construction arena.
By overriding the infamous “IR35” PAYE rules, HMRC’s proposed “deeming employment income provisions for construction” has become the new kid on the block.
The sweeping nature of the Government’s new proposal means that flexible subcontractors who do not provide substantial plant/equipment, or all materials, or employ others, will be deemed as employees when receiving payment for construction operations within the Construction Industry Scheme.
Cynics suggest this could lead to the likes of risky scaffolding turning up on site or spiralling costs of materials that would have otherwise been achieved through contractors bulk purchasing discounts.
They may also point to increased bureaucracy with contractors needing to keep sufficient information to apply the proposed three-test criteria.
Perhaps the real issue is that many contractors will have to adopt a “default employment” position when paying a subcontractor, with the supply chain paying higher PAYE/NICs tax revenues over to the Treasury. HMRC has now conceded that policing employment status in the construction supply chain is no longer “viable”.
With Government resources being squeezed and HMRC openly criticising the construction industry for not self-regulating and even “disguising” employment, the deeming employment tax provision is a more cost effective option.
Experience suggests contractors found HMRC’s rule-based Employment Status Indicator provided conflicting outputs when considering the flexible arrangements of a subcontractor.
Wouldn’t it be refreshing if HMRC took a more pragmatic approach rather than proposing more heavy handed tax regulation?
For instance, HMRC already controls subcontractors’ Gross Payment Status through the unique CIS Regulations, by consolidating the employment status test within the subcontractors GPS Application process.
Clearly HMRC regards the new three-test proposal as a simple quid pro quo, but is this a practical option when considering the confusion between the proposed deeming employment tax provisions and how they conflict with employment law matters?
For more information on Constructing Excellence in the North East, please contact chief executive Catriona Lingwood on (0191) 383-7435 or catriona@cene.org.uk or Chris Leslie Tax NetWorks on (0191) 454-1420 or chris.leslie@bcs.org
