Building firms' £2bn tax dodge

Construction union Ucatt revealed today that workers are being forced to sign contracts with payroll companies in order to obtain work but are falsely classed as self-employed.

In reality they are an employee for a construction company - but the dodge means that their bosses can avoid paying National Insurance.

Their self-employment status leaves workers stripped of basic employment rights and can be sacked without warning, denied holiday, sick pay and a pension, have reduced benefit entitlements and are denied access to employment tribunals.

To add insult to injury the construction worker has to fork out the payroll company's charge - usually between £10 and £25 - which is taken directly out of their pay packet.

The Great Payroll Scandal report commissioned by Ucatt details how the number of construction workers being paid via payroll companies has increased dramatically in recent years with the largest company Hudson Contracts with over 114,000 workers on its books.

Ucatt general secretary Steve Murphy said: "This report is highly significant as it details how workers have little or no option but to sign away their rights and be paid by a payroll company.

"Having been forced to accept this arrangement they then experience the double whammy of having to pay for the privilege."

On top of decimating workers' rights, Ucatt revealed that payroll companies are being used to codify false self-employment in the industry which is costing the Treasury an estimated £1.9 billion a year in lost revenue.

The principal beneficiaries are the employers who save £1.2bn a year by avoiding paying employers' national insurance contributions of 13.8 per cent per worker.

But while there are clear rules on employment status, which is not a matter of choice, the report also revealed that HM Revenue and Customs had virtually given up on enforcing employment status in construction.

The number of reviews which it was conducting more than halved from over 1,000 in 2009/10 to just 433 in 2011/12.

Mr Murphy added: "False self-employment is costing the Treasury billions every year.

"Given that fact, it is simply unforgiveable that they are reducing their enforcement activity.

"This is making it far easier for unscrupulous employers to avoid paying their correct contributions and leads to workers losing their rights."

A spokesman for Revenue and Customs said that false self-employment across all sectors was a recognised risk and had dedicated "compliance officers" to police employment status, proportionate to other risks.

The government has committed £900 million over the spending review period to enable Revenue and Customs to tackle arrangements that seek to minimise or evade taxes.