Opinion: Kye Burchmore
RIFT Legal’s Kye Burchmore, a leading employment status expert with particular experience of advising clients in the construction industry, recently attended an industry seminar on the changes due to take place in April 2016.
Here, Kye talks us through his expert take on what can be a confusing topic for many.
“The seminar was billed as an opportunity to get informed on upcoming changes surrounding the supply of labour in the construction industry. We were already well aware of these changes but thought it was a good opportunity to see how others are approaching this subject.
Construction Industry Training Board (CITB) Levy
The CITB is unique to the construction industry and its purpose is to encourage and facilitate the training within the industry (which it does so via a levy which every company engaging workers must pay). The talk focused on the changes brought in in 2015 which essentially remove the offset for labour-only supply and bring in the new system whereby the levy will apply to any subcontractors a company pays on a NET basis (20% deduction).
The scope of the Small Business Levy Deduction has also been increased, meaning a company can claim a 50% reduced cost for a wage bill between £80k and £400k.
The speaker referred to the Beacon Roofing case where the courts considered whether an intermediary or the client would be liable for the levy and the speaker said that if a company is using an intermediary to engage its staff, the company (and not the intermediary) will still be liable for CITB.
It’s clear to me, however, that while this was the case under the old CITB rules, the change in the legislation means the case of Beacon Roofing no longer applies because the judgement focussed on the definition of “labour only payments” and that definition has now been removed from the legislation. This means that the construction company will only be liable for the CITB levy for any people paid net (i.e. not in intermediary it paid gross) and the intermediary will be the one that will have the pay the levy over to the CITB.
Construction Industry Scheme
If a company wants to be paid gross, they must meet certain compliance tests to show they have a clean tax record. After much criticism and as a result of the Office of Tax Simplification’s recommendations, as of April this year, a number of the tests will be changed making it all less onerous on companies.
The turnover threshold will be reduced from 200k to 100k for companies with multiple directors/partners, and will no longer take into account each of the directors own tax affairs and compliance, just the company’s compliance.
There was also a mention of mandatory online filing and that subcontractors will have to be verified online from 2017 for their tax deductions.
I know from my own experience this will be a problem if HMRC do not improve their systems.
Because, although most people match up, there are a lot of occasions when all the information is correct and online it verifies someone at 30% deduction but when you phone their helpline HMRC confirm that the individual is in fact 20% and it is just a glitch in their systems.
This difference in results between the online system and making a call has never been explained but if everything is then done online, it could mean a small percentage of subcontractors end up having clients deducting 30% when in fact they should be 20%.
Agency Legislation/Employment status
It’s clear that this is a confusing, complex area for many people, even some who consider themselves experts.
The speaker talked about changes that came into effect in 2014 under the agency legislation and penalties for not reporting. He then talked interchangeably about the agency legislation and employment status as though they were the same and he did not make it clear when each piece of separate legislation would apply.
Under employment status, control is a fundamental aspect of whether an individual is an employee or not, and the test under this law is whether an individual “is subject to a sufficient degree of control to make them an employee”. The speaker confused this with the agency legislation and said that employment status considers supervision, direction and control and in most cases, there will be control. This is incorrect and implies there is a much higher threshold for employment status than is the case.
The speaker recommended that contractors must carry out control questionnaires and keep records about employment status. But this is potentially confusing as the real question should be whether the contractor should be concerned with employment status or the agency legislation in the first instance?
It would have also been interesting to hear something about the transfer of debt provisions that can apply with the agency legislation which I think should have been covered.
Expenses Legislation and Changes
We were talked through the changes that come into effect in April 2016 that will impact on an intermediaries ability to pay expenses to workers. I feel I must disagree with the conclusion that this will lead to a rise in costs for clients/employers. I personally think the reality in most cases is that the individuals will take the hit – and be worse off as a result, where the rates of pay are low the cost may have to be pushed up the chain but the individuals will suffer the most from this change. The need to be able to prove a lack of supervision, direction or control to continuing paying expenses was also covered.
It was mentioned that if the individual’s personal service isn’t provided to the client, then this change will not impact them. Whilst this is true, it in most cases, personal service will have been provided. It was also said that an umbrella company could argue that it is their business where the personal service applies and that the individual is not providing the services personally to the client.
In my view, this is an extremely risky approach. Because although I understand the logic, it really is a last resort in arguing a case if absolutely necessary – not the primary advice given about a way in which a company can continue to operate. The legislation was introduced to stop intermediaries paying out tax free expenses and I believe it will be effective in doing this, even if there are some companies that try to avoid the legislation to start with.
It is worth noting that there is also talk about forming a group to instruct a Barrister to consider whether this piece of legislation can be subject to Judicial Review. I see no merit in doing this and feel that offering companies this option is more for marketing so that companies feel represented and have a voice. In my view however, this voice will not have an echo, let alone an impact as Judicial Review is concerned with whether the legislation is lawful. I think the argument put forward may be around it discriminating certain industries (such as labour supply) but I don’t feel this has merit – the current legislation was never supposed to allow temporary workers to claim expenses in the first place, umbrella companies were just a way around this. What’s more, the government are looking at expenses as a whole and will be tightening its grip on these as a whole and allowing less over the coming years.
The seminar also covered the topics of changes to dispensations, national living wage, holiday claims, labour market exploitation and the Gangmasters Licence Authority.
It was widely agreed that the cycle of people who were self-employed and then put onto PAYE because of changes and are now going to be put back to self-employment.
On the whole, the seminar was useful and interesting but confirmed my view that when it comes to employment and legislation, there is no one-size-fits-all approach. Our clients benefit not just from our expertise, experience and up-to-date knowledge of the changing employment law landscape, but how we apply that in a way tailored their business.
Our broad experience of working with construction industry clients means we have particular insight in this sector and can advise in a much wider sense than just ensuring you are legally compliant.
We’d be happy to discuss your particular circumstances and give the advice most suited to your business ambitions.