Details of the Government’s plan to target employment agencies and temporary workers have been highlighted in the just published draft Finance Bill.
Leading accountants estimate the new legislation will affect around 200,000 construction workers operating as self-employed through agencies.
From 6 April they will be subject to tax and employee national insurance contributions deducted at source, raising the expected tax take by £520m in the next year alone.
Mark Collins, Baker Tilly’s National Head of the Employer Consulting Group, said: “These new rules are likely to affect hundreds of thousands of temps and other self-employed workers using employment agencies and will have a disproportionate effect on the construction sector.
“It will be interesting to see how hard-pressed construction businesses react to these extra costs.”
The PAYE and NI rules currently accept that a self-employed worker finding work through an agency is still self-employed and should be taxed as such.
But in the new tax year, if the worker personally carries out the work, or is involved in the provision of the services, payments will have to be payrolled, so the worker will have tax and employee NICs deducted at source.
The agency will also become liable for employer NICs.
This means a worker’s own NI cost will then be 3% higher than the 9% paid as a self-employed person, and the employing agency has a completely new liability at 13.8%.
The proposed government legislation will remove a clause often included in contracts between an employment agency and a worker.
This clause allows the worker to send someone else to do their job, something which in reality the government believes does not happen. Under existing legislation such a clause allows a worker to be classed as self employed.
It is this legal loophole that the Government argues is disguising employment as self-employment.