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The question of 'status' has long perplexed the freelancing sector as they found 'employee' status might apply for issues such as employment rights, but not apply for tax-related issues.
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Now, the OTS recognises that the boundary between employment and self-employment has not kept pace with changing work patterns, especially in recent years. Many people work for more than one business and can be classed as employed for one job and self-employed for other work. It says that the growth of freelancing as a way of conducting business had led some to suggest this is a ‘third way’ between employment and self employment.
Differences
As well as employment status, there are significant tax and NIC differences between employed and self employed status.
Now, the Government has commissioned the OTS, who previously looked into IR35, to examine the dividing line between employment and self-employment and whether it is drawn in the right place and in the right way.
Ironically, the research has specifically excluded the one area where the distinction is perhaps the most blurred in legal, tax and employment terms - that of IR35.
In carrying out their work the OTS will consider:
- Whether the UK’s current employment status tests result in real uncertainty and if so, for what sections of the workforce and in which areas.
- Sectors and types of engagement with the labour market where difficulties in administering the tax rules are relatively common for any or all of those involved with the tax system.
- How well current rules and guidelines fit with situations where individuals have multiple roles; whether the key distinction is between working and not working.
- Trends in employment law.
- HMRC guidance and advice.
- The special cases regulations, primarily as evidence of existing difficulties with the main tax rules.
- The scope for simplification through the increased use of digitisation.
- International comparisons to the UK approach to dealing with employment status and the experience of other countries in managing their approach.
Not IR35
However, the terms of reference specifically exclude:
- IR 35: on the basis that previous OTS work has made recommendations in this area and the Government decided how to take the issues forward. The recent report of the House of Lords Economic Affairs sub-committee has also examined the area.
- The Construction Industry Scheme: CIS has overtones of employed/self employed issues but is not directly relevant the OTS project; HMRC are also currently consulting on proposals for improving CIS.
- The expenses rules for employed and self employed people.
Quick wins
The OTS will produce a report in time for Budget 2015. The intention is that this report will contain any appropriate ‘quick wins’ that it may be possible to take forward quickly.
However, it is likely that if the report points the way to significant reforms, these would be for the next Government to consider.
The OTS's work will be informed by consultation with interested parties, including forming and working with a consultative committee and those who are interested in taking part are asked to come forward.
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Susie Hughes © Shout99 2014
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