Stark Warning over Minimum Wage
As the TUC general secretary Brendan Barber calls for minimum wage to increase 21p to £6.14 per hour, Accountax today highlights the significant risk already facing the construction industry following the introduction on 1st October 2010 of the current National Minimum Wage (NMW). This saw an increase of 13 pence to £5.93 per hour, which equates to an actual total of £7.27 per hour when including an allowance for holiday and Employer’s NI (National Insurance).
“The big question that construction companies have to ask themselves is if they are sure that their labour agencies are complying with MSC legislation. If their labour rates have not recently increased to account for the new NMW, then this could point to non-compliance. It’s time contractors started looking at more than just price when they are hiring workers,” says expert Matt Boddington, Managing Director of Accountax. Many rogue agencies are forcing workers through limited companies, falling foul of MSC legislation and exposing their clients to potential risk, which could run to millions according to Boddington.
Philip Andrews, Managing Director at Workmates says, “The industry as a whole has suffered over the last two years; with budgets significantly reduced this means pressure on the supply chain to make even more savings. However, few are aware of the risks under the MSC legislation. Informed contractors are already carrying out thorough audits of their labour suppliers, we urge more to do the same to prevent longer-term damage to their business.”
Andrews, also a member of the Construction Executive at the Recruitment and Employment Confederation (REC), continued, “We pride ourselves on delivering excellent service to our clients. For us, compliance to the MSC legislation and the National Minimum Wage go hand-in-hand – unfortunately, there are too many agencies prepared to put themselves and their clients at risk, for short term gain.”
Boddington further clarifies the risk that contractors face under MSC legislation: “Any contractor whose workers are ultimately engaged by a company falling foul of the vague definition under this legislation is potentially exposed to a bill for PAYE and NIC on those workers – even if those workers were paid by somebody else. Reassuringly, main contractors are beginning to recognise the risks and have been approaching us to carry out thorough vetting of their supply chain.”
Introduced in April 2007, this relatively recent and heavily criticised piece of tax legislation is now, according to industry tax specialists Accountax, starting to bite in the construction industry, as many companies are being tackled by HMRC (Her Majesty’s Revenue & Customs). A very recent example in March 2010 has seen HMRC write directly to 30 former contractor clients of a scheme that has just stopped trading, claiming that the ‘accountancy service’ provided by the scheme did not adhere to the MSC rules. These contractors, and possibly any other party in the supply chain – right up to the end user – now face a period of uncertainty and debate with HMRC involving potentially millions of pounds of retrospective PAYE (Pay As You Earn) / NIC (National Insurance Contribution).
Two HMRC specialist units have been set up specifically to target the industry with this new legislation. HMRC North Service Company Unit, based in Sheffield, and HMRC South Service Company Unit, based in Taunton, are staffed by specialist trained inspectors whose remit is to investigate and tackle potential MSCs.
Unquestionably, the construction industry has evolved significantly over the past ten years. However this growth has resulted in a multitude of types of businesses now in operation, with varying levels of quality and indeed of compliance. The terminology used to describe these businesses is often inadequate or misleading – from ‘payroll companies’ to ‘composite companies’, with some ambiguously referring to themselves ‘schemes’.
1st Nov 2010
ID: 1339
