False self-employment 


“False self-employment” is what happens when an individual is falsely held out as "self-employed” when their true employment status is that of an “employee” or a “worker”. This is nearly always with a view to avoiding tax, national insurance and/or employment rights. It is a significant problem in the construction sector, but it is growing in other sectors too. The Construction Industry Scheme (CIS), a tax deduction scheme operating in the sector, has been blamed by UCATT as “the main facilitator of false self-employment” in construction. Falsely declaring someone as self-employed instead of operating PAYE deductions produces a tax and national insurance saving. In 2012, UCATT uncovered evidence of CIS payroll companies actively marketing the “conversion” of entire workforces of directly employed construction workers to "self-employed” status, using a payroll company as an intermediary.


In April 2014, HMRC changed the law to try to close down this route to false self-employment. As a result, PAYE and NICs must now be deducted at source from the wages of any worker supplied to a hirer by a third party intermediary such as a CIS payroll company or an employment business, unless the intermediary can prove to HMRC that the worker is genuinely self-employed. Quarterly reports must be provided to HMRC of any worker whose pay is not having tax and national insurance deducted, as well as an explanation why deductions are not being made. 


Initially unions cautiously welcomed this new regime, but as always, new avoidance mechanisms emerged, including, in particular, a significant growth in the use of umbrella companies (see below), described by UCATT as “an extreme form of workplace exploitation”.