Tax professionals came together on Monday 20 March at the CIOT and IFS debate on how different ways of working should be taxed. Suggestions put forward included:
reducing the VAT threshold;
the introduction of a new flat-rate withholding tax for workers; and
charging NICs on an annual basis.
The debate was introduced by Paul Johnson, IFS director, and chaired by Bill Dodwell, CIOT president. A ComRes poll at the weekend, Dodwell observed, showed that 52% of those surveyed said the chancellor was wrong to increase NICs for the self-employed in the Budget, with only 34% saying he was right.
Helen Miller, IFS associate director, said in future one would have to look at how to package planned tax measures to make them more sellable to the populace and avoid the kind of backlash seen over the class 4 NIC changes. ‘It’s hard to isolate one part of the tax system and fix that,’ she added. ‘We need to look at where we’d like to be, then think about the practical “how do we get there”.’
Oxford University tax professor Judith Freeman argued the current VAT threshold was too high and encouraged incorporation. With the advent of making tax digital, she suggested a completely new tax could be levied, and technology used to collect it. ‘We need to think about what we’re trying to do with the taxation of employees, workers and the self-employed, rather than trying to develop better tests [of employment],’ she said.
Deloitte employment taxes partner Mark Groom pointed out that the incentive to incorporate would be stronger five years from now, because the corporation tax rate would have come down from 20% to 17%. Self-employed people, he argued, ‘benefit exponentially’ from the fall in corporation tax rates.
Groom suggested a new flat-rate withholding tax could be introduced for ‘workers’ – who are defined differently to employed and self-employed people – and that PAYE status could be set at worker level, and new IR35 rules could follow the new PAYE status. Workers, he said, are defined even less clearly in government literature than the employed and self-employed, and Groom suggested codifying the outcome of Byrne Brothers into the new definition. The forthcoming review of parental benefits offered a ‘golden opportunity for PR’ by the government on tax, Groom noted, as it was an opportunity to show people what they put into the tax system and what they get out of it in return.
OTS director Paul Morton said the OTS had published reports looking at closer alignment of income tax and national insurance, as well as the ‘gig economy’. What we need, he said, was a simpler and fairer system to treat earnings in the same way. Moving NICs to an annual basis of taxation, for instance, would see large numbers of disadvantaged people – women, young people and the lower-paid – gain. In the longer term, he said, employers’ NICs should be looked at. However, he argued, the issue of how to tax different types of employment remains a ‘complex and broad issue’, and that one ‘needs to look at all aspects to come to a well-rounded view’.
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A debate on taxing different ways of working
Tax professionals came together on Monday 20 March at the CIOT and IFS debate on how different ways of working should be taxed. Suggestions put forward included:
reducing the VAT threshold;
the introduction of a new flat-rate withholding tax for workers; and
charging NICs on an annual basis.
The debate was introduced by Paul Johnson, IFS director, and chaired by Bill Dodwell, CIOT president. A ComRes poll at the weekend, Dodwell observed, showed that 52% of those surveyed said the chancellor was wrong to increase NICs for the self-employed in the Budget, with only 34% saying he was right.
Helen Miller, IFS associate director, said in future one would have to look at how to package planned tax measures to make them more sellable to the populace and avoid the kind of backlash seen over the class 4 NIC changes. ‘It’s hard to isolate one part of the tax system and fix that,’ she added. ‘We need to look at where we’d like to be, then think about the practical “how do we get there”.’
Oxford University tax professor Judith Freeman argued the current VAT threshold was too high and encouraged incorporation. With the advent of making tax digital, she suggested a completely new tax could be levied, and technology used to collect it. ‘We need to think about what we’re trying to do with the taxation of employees, workers and the self-employed, rather than trying to develop better tests [of employment],’ she said.
Deloitte employment taxes partner Mark Groom pointed out that the incentive to incorporate would be stronger five years from now, because the corporation tax rate would have come down from 20% to 17%. Self-employed people, he argued, ‘benefit exponentially’ from the fall in corporation tax rates.
Groom suggested a new flat-rate withholding tax could be introduced for ‘workers’ – who are defined differently to employed and self-employed people – and that PAYE status could be set at worker level, and new IR35 rules could follow the new PAYE status. Workers, he said, are defined even less clearly in government literature than the employed and self-employed, and Groom suggested codifying the outcome of Byrne Brothers into the new definition. The forthcoming review of parental benefits offered a ‘golden opportunity for PR’ by the government on tax, Groom noted, as it was an opportunity to show people what they put into the tax system and what they get out of it in return.
OTS director Paul Morton said the OTS had published reports looking at closer alignment of income tax and national insurance, as well as the ‘gig economy’. What we need, he said, was a simpler and fairer system to treat earnings in the same way. Moving NICs to an annual basis of taxation, for instance, would see large numbers of disadvantaged people – women, young people and the lower-paid – gain. In the longer term, he said, employers’ NICs should be looked at. However, he argued, the issue of how to tax different types of employment remains a ‘complex and broad issue’, and that one ‘needs to look at all aspects to come to a well-rounded view’.
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