Construction union UCATT has called for the abolition of the CIS scheme, claiming that false self-employment is costing the UK government between £1.4bn and £1.9bn in lost tax and national insurance payments.

Speaking as a new report – The Evasion Economy – was launched at UCATT’s conference in Perth, the union’s general secretary Alan Ritchie said: ‘This report reveals that not only is the Inland Revenue losing billions in a hidden subsidy to fat cat construction bosses, but that hundreds and thousands of construction workers are denied basic employment rights.’

With false self-employment, workers pay less national insurance and less tax, while the company avoids employers’ national insurance, meaning those workers are cheaper to employ. The report, written by Professor Mark Harvey of Essex University, claims that false self-employment has risen recently due to the influx of migrant workers from countries such as Bulgaria and Romania. Government regulations make it easier for self-employed people to migrate from these countries and UK employers then take advantage of their vulnerability.

According to Harvey the government grossly underestimates the problem, putting the number of self-employed at between 100,000 and 200,000 and estimating a fiscal loss of £340m. Harvey’s estimate, based on statistical and empirical evidence, is that there are between 270,000 and 325,000 false self-employed.

A spokesman for the Construction Confederation said bogus self-employment remained a problem for the industry but added: ‘In fairness, most good employers do not support the practice of false self-employment, but clearly there are still too many bosses and workers who do allow it to happen.’

He added that the revised CIS Industry Tax Scheme, introduced last year, will hopefully address the problem. Under the new scheme, employers must make a monthly declaration on the employment status of their workers and face penalties of £3,000 for false declarations.

Are you in the clear? Here's some advice from the construction confederation:

  • Evaluate your risk and do something about it by either moving workers onto PAYE or making them contract on genuine self-employed terms with good documentary evidence.

  • The evidence needs to be robust enough to defend a challenge by the Inland Revenue that the arrangements actually amounted to employment.

  • Generally, if the worker does not bring any tools, equipment or additional labour with them it is difficult to make a case that they are self-employed.