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OTS report on employment status

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The Office of Tax Simplification (OTS) has published its report into simplifying how to determine whether a worker is employed or self-employed for tax purposes. Currently, there is no definition of self-employment in law, which the OTS says leaves businesses, individuals and HMRC to consult case  law to establish employment status. While special categorisation rules and practices help some, for others these rules can create anomalies. The consequences to employers of an incorrect decision can be significant bills for income tax and NIC, which the OTS says leads many to hire contractors only through intermediaries.

The OTS recommends various improvements, including:

  • better employment status guidance, in one place with more real-life examples;
  • help for individuals and small businesses on what action a business should take, and the documentation it should have, when engaging a self-employed individual, to preclude or reduce the burden of HMRC enquiries; and
  • setting up a HMRC employment status helpline and allocating more resources to this area.

John Whiting, OTS tax director, commented: ‘The tax system is stuck in an out-of-date mindset. In the 1950s and 1960s, the distinction between employees and the classic self-employed jobbing plumber was clear and easy. Nowadays working patterns are hugely varied, with freelancing being a way of life for many, and that simple split doesn’t work often enough. This causes uncertainty, risk and administrative burdens all round. We have heard from businesses about transactions being delayed or even abandoned due to the risk posed by employment status uncertainty.’