HMRC, HMT and BEIS are consulting jointly until 1 June 2018 on how to define more clearly the employment status rules within the current three-tier system (employee, worker and self-employed), which the government, in its response to the Taylor review of modern working practices, agreed should be retained.
Tax was not part of the Taylor review’s terms of reference. However, as set out in its final report, the review concluded that it was not possible to separate out the two issues entirely. The government agrees with the review that the current employment status framework does not always provide the certainty and clarity individuals and businesses need.
The consultation considers the tests that define the boundary between those currently taxed as employees and those who are taxed on a self-employed basis. It does not consider the proposition that there should be no boundary at all for tax. The government is not proposing to make changes to tax or NICs rates or reliefs.
The document stresses that no decisions about whether or how to reform employment status, or to aim for alignment between the tests for tax and rights, have been made. It seeks views on whether the approach suggested by the review, of setting out the ‘key principles’ of the employment status tests developed by the courts into primary legislation (codification), is the right approach and what the ‘key principles’ would be. The document asks whether codification:
It asks whether the ‘irreducible minimum’ of key factors identified in tax cases (mutuality of obligation, personal service, and control) should be the main principles codified into primary legislation. It raises issues in relation to each of these three factors:
Other questions considered for inclusion in legislation for determining if someone is an employee are:
If codification were pursued as an option, the government would consult further on the detail of any secondary legislation.
In looking for a better employment status test, the document considers options for a more precise test, and a less complex test.
For a more precise test, the document suggests a range of possible criteria, including:
The statutory residence test for tax purposes is given as an example of a test incorporating a range of criteria.
For the less complex test, examples are given of the ‘supervision, direction or control’ test used for individuals working through agencies (as well as the USA’s ABC test and Germany’s ‘3 out of 5’ test).
Commenting on the consultation, John Cullinane, CIOT tax policy director, said that ‘by ruling out changes to the rates of NICs in relation to employment and self-employment, the government are denying themselves many of the tools they need to tackle the issues Taylor identified around employment status’.
‘The imbalance between the tax burdens on employment and self-employment remains unsustainably large’, Cullinane added. There is a need for a full public debate, although ‘no solution will be painless or immediately popular’, he warned.
While welcoming the government’s aim of making it easier for both individuals and businesses to understand which rights and tax obligations apply to them, the CIOT is concerned that maintaining three categories of worker for employment law, but just two for tax, means continued ‘confusion and inconsistency among taxpayers and their employers, and exploitation of workers in too weak an economic position to resist entering into work arrangements that HMRC might be expected to challenge’.
PwC partner Julian Sansom questioned whether the government has necesarily closed the door on all changes to tax and NICs . 'A first read of the employment status consultation raises one big question: does it rule out changes to tax rates or NICs for "workers" who are not "self-employed" or not? Or will changes be funded by defining many of the current "workers" as ‘employees?'
Steve Wade, chair of the ICAEW tax faculty employment taxes and NIC committee, welcomed the government’s positive response on employment law aspects, ‘but the absence of other than cursory reference to the reform of employment/self-employment tax, or more precisely NIC, as part of such an overarching review into the world of work is disappointing. This is, however, perhaps not surprising given the government’s earlier manifesto commitments’.
Michael Steed, co-chair of ATT’s technical steering group, said the government should avoid any clash with MTD and ensure that ‘changes which could alter whether or not somebody is classed as self-employed should not be made to coincide with the major changes involved in the introduction of MTD’.
The government has also published consultations covering ‘Agency workers recommendations’, ‘Enforcement of employment rights recommendations’ and ‘Increasing transparency in the labour market’.
HMRC, HMT and BEIS are consulting jointly until 1 June 2018 on how to define more clearly the employment status rules within the current three-tier system (employee, worker and self-employed), which the government, in its response to the Taylor review of modern working practices, agreed should be retained.
Tax was not part of the Taylor review’s terms of reference. However, as set out in its final report, the review concluded that it was not possible to separate out the two issues entirely. The government agrees with the review that the current employment status framework does not always provide the certainty and clarity individuals and businesses need.
The consultation considers the tests that define the boundary between those currently taxed as employees and those who are taxed on a self-employed basis. It does not consider the proposition that there should be no boundary at all for tax. The government is not proposing to make changes to tax or NICs rates or reliefs.
The document stresses that no decisions about whether or how to reform employment status, or to aim for alignment between the tests for tax and rights, have been made. It seeks views on whether the approach suggested by the review, of setting out the ‘key principles’ of the employment status tests developed by the courts into primary legislation (codification), is the right approach and what the ‘key principles’ would be. The document asks whether codification:
It asks whether the ‘irreducible minimum’ of key factors identified in tax cases (mutuality of obligation, personal service, and control) should be the main principles codified into primary legislation. It raises issues in relation to each of these three factors:
Other questions considered for inclusion in legislation for determining if someone is an employee are:
If codification were pursued as an option, the government would consult further on the detail of any secondary legislation.
In looking for a better employment status test, the document considers options for a more precise test, and a less complex test.
For a more precise test, the document suggests a range of possible criteria, including:
The statutory residence test for tax purposes is given as an example of a test incorporating a range of criteria.
For the less complex test, examples are given of the ‘supervision, direction or control’ test used for individuals working through agencies (as well as the USA’s ABC test and Germany’s ‘3 out of 5’ test).
Commenting on the consultation, John Cullinane, CIOT tax policy director, said that ‘by ruling out changes to the rates of NICs in relation to employment and self-employment, the government are denying themselves many of the tools they need to tackle the issues Taylor identified around employment status’.
‘The imbalance between the tax burdens on employment and self-employment remains unsustainably large’, Cullinane added. There is a need for a full public debate, although ‘no solution will be painless or immediately popular’, he warned.
While welcoming the government’s aim of making it easier for both individuals and businesses to understand which rights and tax obligations apply to them, the CIOT is concerned that maintaining three categories of worker for employment law, but just two for tax, means continued ‘confusion and inconsistency among taxpayers and their employers, and exploitation of workers in too weak an economic position to resist entering into work arrangements that HMRC might be expected to challenge’.
PwC partner Julian Sansom questioned whether the government has necesarily closed the door on all changes to tax and NICs . 'A first read of the employment status consultation raises one big question: does it rule out changes to tax rates or NICs for "workers" who are not "self-employed" or not? Or will changes be funded by defining many of the current "workers" as ‘employees?'
Steve Wade, chair of the ICAEW tax faculty employment taxes and NIC committee, welcomed the government’s positive response on employment law aspects, ‘but the absence of other than cursory reference to the reform of employment/self-employment tax, or more precisely NIC, as part of such an overarching review into the world of work is disappointing. This is, however, perhaps not surprising given the government’s earlier manifesto commitments’.
Michael Steed, co-chair of ATT’s technical steering group, said the government should avoid any clash with MTD and ensure that ‘changes which could alter whether or not somebody is classed as self-employed should not be made to coincide with the major changes involved in the introduction of MTD’.
The government has also published consultations covering ‘Agency workers recommendations’, ‘Enforcement of employment rights recommendations’ and ‘Increasing transparency in the labour market’.
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