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New government measures on bogus self-employment

Bogus self-employment: new government measures on false self-employment

17 June 2014

Updated 17 June 2014

New tax and insurance measures to deal with bogus self-employment came into force on Sunday 6 April 2014.

Although Unite the union welcomes moves to tackle bogus self-employment (see below for details), Unite is extremely concerned that employers are attempting to circumvent the new tax regulations.

A number of disturbing reports have been received of agencies that are attempting to force workers into so-called ‘umbrella payroll companies’.

Through this the agencies then seek to off-load the employer and employee NI contributions,as well as other benefits such as holiday pay, all to the detriment of the worker. Unite has heard worrying reports of workers being actively encouraged to submit fraudulent expense claims to offset the losses in income, which could clearly have long term implications to the individuals.

Unite believes such actions do not comply with the spirit and intent of the legislation and has taken legal advice.

Our advice to members confronted with such situations is the following:

1. Members should resist being pushed into payroll companies and insist on being directly employed on a PAYE basis under the terms of the JIB agreement. Being switched to payroll companies risks serious financial disadvantage – we have cases where companies are trying to get rid of extra holiday pay, while also shifting the full employer and employee NI contributions onto the worker. Unite members have successfully challenged deductions (of up to 25%) in a number of cases and gained direct employment as a result;

2. Members working in JIB companies should already be directly employed on PAYE by the company, however if you are in a JIB company but not currently directly employed then insist on being changed to PAYE status – remember the JIB is committed to supporting direct employment (see the JIB 2014 handbook);

3. Attempts to force members into accepting payroll company status against your will should be strongly resisted. In the event of this happening make sure that your shop steward and/or regional official is aware of what is happening and seek their advice. Regional officers should be informed of any companies where it is known that this is happening;

4. More detailed advice and material will be issued by Unite shortly, in the meantime members are encouraged to visit the Unite website construction sector pages and to be familiar with the “Play by the Rules” campaign that aims to ensure all members working for JIB member companies enjoy the full terms and conditions of the agreement and likewise for those members who also work under other collective agreements.

Where did the new measures come from?

The new measures are in response to a HM Revenue and Customs consultation earlier this year.

Unite, which has campaigned about bogus self-employment in the UK construction industry, responded to the consultation . Key points made in our response - not all of which have been addressed by the government - included:

•   Concern that the practice is spreading to other sectors and if not dealt with comprehensively and
swiftly will lead to a growth of bad practice, a loss of employment rights to many workers and
lost tax revenues for the Exchequer

•   The need for swift action by government to prevent employment intermediaries being used to
disguise false self-employment

•   The need for the definition of an intermediary to be broad, covering pay-roll companies, umbrella
companies, employment businesses and sub-contractors. The definition should also anticipate
future contractual devices designed to circumvent the legislation

•   Anyone subject to significant control, supervision or direction in relation to their work should be
deemed to be employed for tax and employment rights purposes

•   The Construction Industry Scheme (CIS) should be abolished (government actions have not done this)

•   The need to ensure that businesses do not seek to avoid the proposed legislation through an
increased use of personal service companies or managed service companies

•   Government should consider introducing a Targeted Anti-avoidance Rule (TAAR) to ensure that
the legislation works as intended

•   Swift action from government to end the abuse of travel and subsistence schemes by umbrella
companies, pay roll companies, employment businesses and other intermediaries

•   Urgent need for the government to reform the law on employment status for the purposes of
statutory employment rights

The government published its response to the consultation during March 2014. The response included guidance on the definition Supervision, Direction and Control for employment status purposes. For more details see the response page.

The majority of the measures came into force on 6 April 2014, while the regulations for record keeping, returns and penalties are due to come in force from 6 April 2015.