The Treasury has issued a consultation document on the introduction of new rules to determine whether or not workers in the construction industry are self-employed for tax and NIC purposes. The proposed new rules are intended to deal with what the Treasury and HMRC consider to be "false self-employment". False self-employment occurs where workers are treated as self-employed despite the fact the way in which the work is carried out demonstrates an employment relationship.

If the proposals are adopted as they currently stand, it is likely that many more workers in the construction industry will require to be taxed as employees, increasing the cost and administrative burden already borne by those operating within the construction industry.

The proposal is that, where the services of a worker are engaged to carry out construction work, the payment for those services to that worker will be deemed to be employment income (and subject to PAYE and NICs) unless at least one of the following criteria is met:

  1. the worker provides the plant and equipment required for the job they have been engaged to carry out. This will exclude the tools of the trade which it is normal and traditional in the industry for individuals to provide for themselves to do their job;
  2. the worker provides all materials required to complete the job they are engaged to carry out; or
  3. the worker engaged to carry out the job provides other workers to carry out work under the contract and is responsible for paying them.

If none of the above tests is met, then the proposal is that the worker should be treated as an employee, even if they would not be considered to be an employee under the normal tax employment status tests.

It has been acknowledged that a worker will not automatically become an employee for employment law purposes if they are determined to be an employee for tax purposes under these rules.

The consultation document is available to download from HM Treasury and all comments should be submitted by 12 October 2009.