KBB retailers and contractors are expected to react angrily to news that the Treasury is finalising reforms to the tax ‘loophole’ which allows self-employed workers to avoid paying national insurance.
The move comes only months after kitchen designer Diane Berry told kbbreview that retailers were “cheating the system” by using the same subcontacted fitters all year round, thereby avoiding paying tax, national insurance or pensions.
She claimed the issue is “one of the biggest in the kitchen industry and much worse in bathrooms”, leaving the consumer with no recourse to the retailer if a project runs into problems and the fitter “long gone and on to the next job”.
But according to a report by the BBC, the Government has now drawn up plans to target workers who set themselves up as private companies to take on work.
An announcement is expected to be made in this month’s Budget.
The Treasury clams a third of people claiming self-employed status as a “personal service company” are actually full employees and should pay more tax.
It is now looking to demand that firms that use personal service company contractors take legal responsibility for ensuring “off-payroll” contractors stick to the tax rules known as IR35.
A similar move in the public sector on “synthetic” self-employed has raised £410 million extra in taxes since 2016, HMRC estimates suggest.
Full employees pay higher levels of national insurance compared with the self-employed.
Manchester-based Berry employs all her fitters in the “cards in, old-school way”, which she claims brings huge benefits to the business.
However, she admitted her approach “makes selling harder” as her prices are higher, but that it was ultimately worth the extra cost.
Her views sparked a storm of protest from other retailers, many insisting that subcontracting is a better approach for both sides.
Dave Jarvis, managing director of Albion Bathrooms, Kitchens and Electricals in Burton-on-Trent, said Berry’s comments were “unrealistic in a modern economy”.
“Certainly in my area any good tradesperson/fitter is going to want a take-home pay of at least £40k to equal the earnings they are getting working for themselves,” he said. “As Diane points out, business is hard to come by and hard to win, so adding this sort of figure to the selling price over a year will make it even more so, especially if you are like us and have five fitters working for you. We are only doing what the Government told the NHS to do years ago – contracting out to reduce costs and keep the standards the same.”
Meanwhile, Mark Earles, proprietor of Mark Earles and Son in Lincoln, said that most of the installers he knew would “never dream of going ‘cards in’ as they simply wouldn’t earn enough”.
“Although saying they employ their own fitters sounds good in the sales pitch, I doubt that Diane Berry pays these top tradespeople the £75k to £100k that they could earn self-employed – more like £30k, if they are very lucky,” he said. “But I’m not knocking the guys that choose to be employed, as self-employment isn’t for everyone.
“As for being ‘cheated’, it’s all about choice and, for the most part, they choose self-employment.”