As many as 460,000 hard-working low-income workers are being forced into self employment by tax dodging employers, resulting in undercut wages and lost tax revenues for the UK economy.
Citizens Advice warns that “unscrupulous employers” are compelling staff to become self-employed in a bid to avoid paying competitive wages and their fair share in taxes.
The highly respected advice service claims that as many as 1 in 10 are being wrongly pushed into self-employment by their employers; so that those employers can then avoid paying National Insurance, sick pay, holiday pay and pension contributions.
Citizens Advice surveyed 491 people who identified themselves as being ‘self-employed’. They claim that “bogus self-employment could cost the Government up to £314 MILLION a year in lost tax and employer national insurance contributions”.
They also claim that responsible employers could be losing out on valuable talent, as cheating businesses seek to undercut their competitors.
In a landmark report, Citizens Advice exposes a number of factors used by unscrupulous employers, who are allegedly avoiding paying workers a fair wage and dodging tax responsibilities.
Citizens Advice draw attention to “factors including work hours set by the employer, using the business’ equipment and having tax deducted from their pay by their employer could mean an individual should be an employee rather than self-employed”.
Other findings from the report include:
- An average of over £1,200 per worker per year lost in holiday pay.
- People pay an extra £61 per year in National Insurance that they would not pay were they classified as employed.
- The loss of employer National Insurance contributions costs the Government over £300 per person per year.
Last year, Citizens Advice helped more 30,000 self-employed employed people with debt, employment rights and benefit entitlements.
Gillian Guy, chief executive of Citizens Advice, said: “Working for yourself should be an empowering experience not an opportunity for rogue firms to siphon away benefits like sick and holiday pay.
“With our research finding two in three self-employed are happy with their work status, it is clear the majority are thriving in start-up Britain. But there are workers who are missing out on over a thousand pounds a year because they should legally be official employees.
“Not only does it cost workers, it also costs the Government through lost tax revenue and undermines businesses trying to do right by their employees. The Government’s review into self-employment is a welcome opportunity to look at how these workers can be more supported.”
Their report also reveals how government departments use “different definitions of self-employment, making it hard for workers and businesses to be clear about employee status”.
As part of a new campaign, Citizens Advice is “calling on the Department for Business, Innovation and Skills to use the Government review into self-employment to address key issues”, including:
- Clarity and consistency around the definition of self-employment.
- Support for people looking to save for retirement.
- Pay for parental leave.
Citizens Advice says the only way self-employed people can secure greater employment rights is through a lengthy process at an employment tribunal – a process that many will find affordable.
Research by Citizens Advice in 2014 found that as many as “7 in 10 potentially successful cases are not pursued by people at Employment Tribunals”.