Labour reveal £400m builder tax loophole

Construction workers who claim to be self-employed when they are not are costing taxpayers £400m a year in reduced tax and national insurance payments, Labour will claim tomorrow.

A future Labour Government would close a loophole in the tax system which gives building workers an incentive to be treated as self-employed sub-contractors. Labour would also clamp down on tax avoidance by professionals. Last year, it emerged that about 2,400 civil servants enjoyed “off payroll” arrangements and the BBC said it would review the freelance contracts of more than 800 on-air staff who are paid through their own companies.

Labour is promising specific action on the construction industry because it accuses the Coalition Government of failing to act. It follows a review commissioned by Ed Balls, the shadow Chancellor, which consulted employers, workers and tax and employment experts.

Under the industry’s scheme, workers can be engaged by a company, often via a payroll firm acting as an intermediary, to turn up on a building site, work as part of a team under someone else’s direction, and yet be treated as a self-employed subcontractor with no security or employment rights and without paying the full level of national insurance contributions.

An estimated 300,000 “bogus self-employed” construction workers would be deemed by a Labour Government to be ordinary employees. Labour said it would work with the industry to ensure the genuinely self-employed were not hit and the sector was not damaged.

Rachel Reeves, the shadow Chief Treasury Secretary, said: “In tough times like these when there is less money around, we cannot afford to leave loopholes in the tax system that allow vital revenue to be lost. It is also unfair on the majority who do the right thing and play by the rules if some are able to avoid paying their fair share of tax. After three wasted years of flatlining which have seen living standards falling and deficit reduction stalling, this is even more important.”

She added: “Removing a perverse financial incentive for workers whom most would regard as being in an employment relationship to be classed as ‘self-employed’ would be good for the construction sector and its workforce too. As things now stand, the majority of employers in the sector who do the right thing and pay the right level of tax are vulnerable to being undercut by those who do not. This is not fair and it’s not good for the long term strength and sustainability of the industry.”