Inland reveune's decision to uphold ruling against Gabem Management puts pressure on workers' access to tax savings

Construction’s biggest composite company, Gabem Management, is facing an overhaul of its business after the court of appeal upheld a ruling against its tax regime.

The court of appeal yesterday threw out Gabem’s appeal against an Inland Revenue decision to strip it of its right to be paid gross of tax. This means labour agencies will no longer generate huge tax savings for workers by using Gabem’s accountancy services in the way they have done up till now. Gabem's systems are understood to be the most widely used systems in the industry.

The cut in savings in this way greatly reduces the appeal of composite companies and therefore the temptation for workers to participate in bogus self-employment in order to use them. The Inland Revenue decision against Gabem could signal the start of a crackdown on the industry’s composites.

Gabem said it would continue operations despite short-term cash flow pressures. Managing director Trudy Gordon said: "This is disappointing, but our clients and the thousands of operatives for whom we provide personalised accounting, administration, and payroll services can be assured that Gabem will continue to operate normally."

“The change is unfortunate but not critical. There will be a short-term alteration to our cash flow, but Gabem is a successful business and we can manage this. We regret that we have to ask clients now to change their own systems to make deductions from payments to us – but this does not affect the way that payments to operatives are calculated, and they will be paid in the normal way.”

However, Gordon emphasized that the decision could have far-reaching implications for construction. She said: “Our business does not operate in a vacuum - any decision about Gabem’s situation ultimately carries implications for the whole of the industry.”