Tax crackdown on self-employed

Employment lawyers have warned HMRC plans to close a tax avoidance loophole could have unintended consequences for consultants and the self-employed.

HMRC has proposed legislation to crack down on a scheme whereby people use employment agencies to falsely set themselves up as self-employed in order to avoid tax and national insurance payments. It claims this practice leads to unfair competition and individuals being denied basic employment rights such as sick pay or the minimum wage.

However, the Employment Lawyers Association (ELA) argues the legislation, which is due to be implemented in April, is being rushed in, will mistakenly hit legitimate businesses and could spawn satellite litigation.

James Warren, chair of the ELA committee on the issue, says: “The government risks undermining its own objective of a simpler test for determining when remuneration must be treated as earnings from employment by making the position more uncertain and complex with its proposals.”