Tax & admin · 13 January 2016

“False self-employment” crackdown leads to increase in HMRC construction industry yield

false self-employment
“The construction industry is seen as an easy target by HMRC” according to Roy Maughn

The amount raised by HMRC as a result of tax investigations into the construction industry has increased by 17 per cent in the past year, according to new research by accountancy firm UHY Hacker Young.

The data revealed that HMRC’s revenues from investigations increased by some £20m during the 2014-2015 tax year – with much of the increase coming from challenging contractors’ statuses as self-employed.

Roy Maughn, a tax partner at UHY Hacker Young, said: “The construction industry is seen as an easy target by HMRC and has been subjected to increasingly intense investigations in the last few years.

“Construction typically has a far higher proportion of self-employed workers and subcontractors than most sectors, and they will often move jobs more frequently. When this happens it’s more likely that mistakes or omissions might be made to paperwork or a worker’s tax status.”

Some 4.5m people were self-employed in the UK in 2014, according to the Office for National Statistics (ONS) – though figures have been debated because no legal definition of the term exists.

Chancellor George Osborne pledged in his 2013 Autumn Statement to crackdown on people “disguising employment as false self-employment”.

And contractors across a range of industries have received increased attention from HMRC in the last tax year ­– with criminal prosecutions for tax evasion some 58 per cent higher. Accountants have described the move as focusing on “soft-targets”.

However, many freelancers welcomed the news in December 2015 that no changes to contractor legislation IR35 would be made for the 2016/2017 tax year.

Bodies representing contractors – including the Association for Independent Professionals and the Self Employed (IPSE) – had warned in advance of George Osborne’s Autumn Statement that restricting the ability of freelance professionals to remain self-employed during longer projects would render contracting “impossible”.

An IPSE spokesman told ContractorCalculator: “We’re pleased that our efforts, alongside those of numerous other groups and hundreds of thousands of contractors, have helped to convince the government to go back into listening mode.

“Clearly the message got across that the approach HMRC was considering wasn’t the most appropriate one.”

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ABOUT THE EXPERT

Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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