In April last year, the Onshore Employment Intermediaries Legislation (OEI) came into force after a ridiculously – and deliberately – short consultation period. The target was to move 200,000 construction workers from CIS to PAYE, raking in an extra £500 million a year.
The target seemed high, but during a parliamentary debate last month, Financial Secretary to the Treasury David Gauke revealed that OEI is on target to bring in £2 billion.
Mr Gauke was responding to a question asking why the Coalition had not resurrected Labour’s idea of ‘deeming’, under which a labour-only subbie would be deemed to be employed for tax if they did not supply their own materials, major items of plant or additional labour. Labour’s original concept was quickly dubbed ‘The Unfair Building Tax’ as it meant thousands of self-employed construction workers would be treated differently from those who are self-employed in other industries.
Thankfully, David Gauke’s response was that deeming was not practicable, and that OEI is doing its job.
It means we shall have to wait and see who holds power in May, to see if ‘deeming’ rears its ugly head again.
Meanwhile, to soften the blow of moving from CIS to PAYE many operatives have moved to Umbrella schemes. Under these schemes, using a salary sacrifice, the operatives are able to offset some of their fees as tax-free expenses. It’s only a temporary sweetener, however, as these schemes are set to fall away in April 2016 when certain salary sacrifice clauses are due to be outlawed.
The question is, will Chancellor Osborne spring a surprise in his pre-election budget?
Construction is always an easy target when money is tight: it’s easy to justify axing a few major projects, clamping down on self-employment, or introducing ‘green’ taxes that only hit construction.
OEI has sparked unrest on many sites, because ultimately it is the operative who is obliged to bear the brunt of increased taxes. Agencies have not made any attempt to comply with OEI – they have simply hidden under umbrellas. So it will be interesting to see what happens when those umbrellas are blown inside-out, whether the storm comes in this budget or the next.
As you would expect of Hudson Contract, we have taken a different position, and spent the past fifteen months making sure that in complying with OEI, we honour our responsibility to all by applying the correct tax treatment, no matter whether it is CIS or PAYE. Whatever surprise measures may be revealed in the budget, we are ready – and willing and able to respond.