A little-known tax avoidance trick in the world of recruitment that costs the Treasury hundreds of millions of pounds a year is to be consigned to history.
In major project-based industries like construction, security and oil and gas, big contractors generally use recruitment companies to find them the workers they need.
The workers are generally self-employed, meaning the contractor does not have to pay their National Insurance and PAYE. They are also denied employment rights such as holiday pay and redundancy notice terms.
The government believes that, in many of these cases, the workers are, to all intents and purposes, employees and should be treated as such for tax and employment rights purposes.
Aidan Sutton, director at PWC, said: “These kinds of arrangements put companies who directly employ their workforce at a competitive disadvantage. I certainly welcome the government cracking down on abuse in this area, but I hope it doesn’t catch innocent commercial arrangements.”
While the Treasury was thin on detail, it declared that it was going to tackle “contrived contracts” – in other words, those most obviously created for the purpose of avoiding tax rather than genuinely reflecting the work undertaken.
Despite the lack of concrete proposals, the government claimed the measures will raise £2bn in taxes in the next five years.