Bibby warns PAYE changes will stifle recovery for the construction industry
The construction industry is reeling following the recent Government consultation regarding proposed changes to the application and collection of PAYE (Pay As You Earn) tax - a bid to tackle what it is calling ‘false-self employment’ in the industry.
The new legislation, which is yet to be agreed, would automatically apply PAYE to all self-employed subcontractors unless an employer can prove that materials, tools and / or additional labour is being directly provided by the employee.
Contractors will be forced to deduct tax and National Insurance contributions from the otherwise self-employed subcontractor, a process many fear will; unnecessarily raise the cost of hiring; further boost the illegal cash-in-hand workforce and ultimately slow the recovery of the sector.
Jason Heath, construction finance specialist at Bibby Financial Services commented: “It’s no secret that the construction industry has been one of the worst hit by the current recession. The Office for National Statistics1 recently reported that the total volume of output by the construction industry fell 10 per cent in the 12 months to the second quarter of 2009.
“Understandably, therefore, contractors with limited cash flow are in an already highly precarious position. This will further be exacerbated by the proposed changes to PAYE which will increase their own initial outlay while providing an additional reason for clients to extend payment terms, ultimately stifling the much needed recovery of the sector.
“The issue of the so called ‘false-self employed’ identified by the government does need to be addressed, it seems heavy handed, however, to implement the proposal in its current guise which effectively tars all subcontractors with the same brush.
“Construction is Britain’s largest sector, employing some 2.2 million people3, and the industry requires the support and backing of a government that not only recognises this, as well as its recent troubles, but is also sympathetic to a workforce that is required to be flexible and adaptable by its very nature.
“Whether the PAYE changes are implemented remains to be seen but one issue hampering contractors and subcontractors alike is cash flow. But with many lenders now shying away from the construction industry, there are still viable forms of support and finance available.
“Indeed, Bibby Financial Services is very much dedicated to continuing to provide advice and funding to the tune of £30m every year to a variety of small, medium and large contractors. Its Construction Finance package has been designed specifically to meet the business needs of the industry. It supplies funding against both invoices and applications for work completed under most forms of contract with bad debt protection included so the construction firm gets paid, even if one of their customers becomes insolvent.”