Set up to look at how employment law needs to adapt to modern working patterns, the review was prompted by the growth in agency working and the gig economy. While specific tax proposals were outside the scope of the review, it did identify that, while tax law recognises someone as either employed or self-employed, employment law allows for a third category, the worker, who only receives basic employment rights.
Determining the correct classification between employment and self-employment has never been straightforward for either employment or tax law - or for successive governments.
The Taylor review proposed a new category of worker for employment law purposes called the 'dependent contractor'. The dependent contractor would be someone who works flexibly in less formal employment with a more basic package of rights than a normal employee.
The Budget announcement in the ‘Overview of Tax Legislation and Rates’ document will see further investigation and consultation into determining employment status.
It said: “As announced at Autumn Budget 2017, the government will publish a consultation as part of its response to Matthew Taylor’s review of modern working practices, considering options for reform to make the employment status tests for both employment rights and tax clearer. The government recognises that this is an important and complex issue, and so will work with stakeholders to ensure that any potential changes are considered carefully.”
ATT - 'Three into two'
Yvette Nunn, from the Association of Taxation Technicians (ATT) said: “The ATT welcomes the further contribution to debate in this area, particularly in respect of the difficulties of having two classifications for tax law (employed or self-employed), but three in employment law (which includes ‘worker’).
“However the proposed dependent contractor status, still leaves the tax system trying to fit three into two. The proposed dependent contractor would presumably be taxed as an employee, despite having fewer employment rights. This is likely to create NIC costs for many employers in the gig economy and increase NIC rates paid by workers, which will presumably be unpopular.
“The ATT would like to see a broader discussion here factoring in the wider tax aspects.
“There are lots of other areas that could be usefully brought into discussion to produce a framework for modern working. This could include considering those working via agencies and personal services companies. Any discussion also needs to factor in all other taxes to look at the overall contribution for income tax, NIC and, for those operating via personal service companies, corporation tax.”
Qdos - Confusion
Seb Maley, Qdos Contractor CEO said: “We welcome the long overdue review of confusing employment and tax status. The boundaries between what legally constitutes as a contractor, an employee or even gig economy worker must be simplified for everyone involved.
“In time this might become all the more important should IR35 reform reach the private sector. With confusion surrounding the definition of each worker, the Government cannot expect the companies engaging them to make accurate employment and tax status decisions with regards to thousands of workers.”
FCSA - Structural changeJulia Kermode of the Freelancer and Contractor Services Association said: “We are pleased that the Government recognises that employment status is an important and complex issue, and will be exploring options for longer-term reform making employment status tests for both employment rights and tax clearer. This is positive providing that it will be a genuine and meaningful consultation, and that stakeholders will be listened to.
"FCSA has a great deal of expertise in employment status and tax status, and we campaigned against HMRC's online tool “Check Employment Status for Tax” because it ignores a key element of IR35 case law, that of mutuality of obligation. Despite this glaring omission HMRC continues to believe that its tool does give accurate results, and we will continue to campaign against this, and we hope that the wider consultation will result in a better, more accurate tool.
"Work patterns are changing and we are seeing a growth in non-traditional employment that is going to continue as more people choose to shun permanent employment in favour of working for themselves. This structural change to the UK workforce requires a structural change to the regulations not knee-jerk changes driven by tax collection, and for that reason we welcome the opportunity to explore options for longer-term reform."
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Susie Hughes © Shout99 2017