Bogus self-employment costing millions to workers and Government

As many as 460,000 people could be ‘bogusly self-employed’ meaning workers miss out on holiday pay, government loses tax revenue and responsible businesses could be undercut, says Citizens Advice.

In its new report Neither one thing nor the other Citizens Advice highlights how unscrupulous employers can compel staff to be self-employed when they should in fact have employee status.  This means employers can avoid paying the minimum wage, employers’ National Insurance, sick pay, holiday pay and pension contributions.

Citizens Advice surveyed 491 people who identified as working for themselves, but found one in ten of them could be wrongly self-employed. Based on this figure the charity reveals bogus self-employment could cost the Government up to £314m a year in lost tax and employer national insurance contributions.

Responsible employers can also lose out as firms forcing people into self-employment means the savings they make can be used to undercut competitors’ prices.

A combination of 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.

The research also identifies specific financial losses felt by the bogusly self-employed and the Government:

• 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 local Citizens Advice helped over 30,000 self-employment people, with the most common problems being 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.”

As part of Citizens Advice’s self-employment campaign it 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.

Government departments, including the HMRC and the Department for Work and Pensions, have different definitions of self-employment, making it hard for workers and businesses to be clear about employee status.

The only way to prove employee status and secure the rights this provides is to go to an employment tribunal, a lengthy process which many cannot afford since fees were introduced in 2013. Last year research from Citizens Advice showed 7 in 10 potentially successful cases are not pursued by people at Employment Tribunals.

Notes to editors

1. The one in ten people potentially bogusly self-employed figure was derived by looking at Indicators including whether they choose the hours that they work, provide their own equipment and if their employer deducts tax from their payslip. Respondents were classed as potentially bogus self-employed where they hit three or more markers.

2. Estimates from the Office for Tax Simplification show that, if 10% of people are bogusly self-employed, the government could lose as much as £314 million each year (Employment Status Report. 2015, using figures from HMRC Personal Income Statistics 2012-13 ) The Citizens Advice finding that 10.4% of survey respondents seem likely to be bogusly self-employed suggests that the government could be losing significant revenue.

3. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.

4. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.

5. To find your local Citizens Advice in England and Wales or to get advice online, visit citizensadvice.org.uk.

6. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.

7. Citizens Advice Bureaux in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full 2013/2014 service statistics see our quarterly publication Advice trends.

8. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.