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Taylor review: more consistent taxation across employment forms

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Matthew Taylor has presented his report on a review of the balance between employment, self-employment, new flexible forms of ‘atypical’ work and employment rights in the modern workplace. Although specific tax changes are outside the remit of the review, the report inevitably contains several references and suggestions in relation to the tax system.

At the heart of the report are seven key steps ‘towards fair and decent work with realistic scope for development and fulfilment’. Among these, the report states: ‘Over the long term, in the interests of innovation, fair competition and sound public finances we need to make the taxation of labour more consistent across employment forms while at the same time improving the rights and entitlements of self-employed people.’

The report recommends retaining the current three-tier approach to employment status (employee, worker and self-employed), but proposes introducing a new name, ‘dependent contractor’, to replace the category of people who are eligible for ‘worker’ rights without being full employees. In developing the test for the new ‘dependent contractor’ status:

  • control should be of greater importance, with less emphasis placed on the requirement to perform work personally;
  • renewed effort should be made to align the employment status framework with the tax status framework to ensure that differences between the two systems are reduced to an absolute minimum;
  • the dividing line should be between the new dependent contractor status as outlined and self-employment, so that being employed for tax purposes naturally means an individual is either an employee or a dependent contractor.

The government should develop a free-to-use online tool that provides individuals and employers with an indication of their employment status, similar to the employment status indicator tool for tax purposes.

Echoing other recent studies, the review believes that the current tax system ‘acts as an incentive for practices such as bogus claiming of self-employed status, by both businesses or individuals’.

The report finds the current situation, where a self-employed person doing the same work as an employed person can pay a different amount of tax or NIC despite receiving similar contributory benefit entitlements, is ‘not justified, or sustainable, nor is it conducive to the goal of a good work economy’.

Furthermore, the report is supportive of the increases in Class 4 NICs proposed and then withdrawn by the government. It states that: ‘The principles underlying the proposed NI reforms in the 2017 spring budget are correct. The level of NI contribution paid by employees and self-employed people should be moved closer to parity.’

In relation to employer NICs, the report states that ‘there is a case for companies and others who engage self-employed labour to contribute more to the overall NI payments made by the self-employed, in the same way as they do for employees’.

The report is enthusiastic about making tax digital (MTD), which it describes as ‘arguably the most radical overhaul of the tax system in a generation’ and ‘a key part of the government’s plans to make it easier for individuals and businesses to get their tax right’. Despite the delay caused by the election, the review ‘is clear that a more dynamic system of taxation for the self-employed is necessary and we expect the government to continue with MTD reforms as soon as possible’.

The CIOT has welcomed the Taylor review’s recommendation that treating different forms of employment more equally in the tax system would be fairer, but sees the need for further work to ensure fairness and simplicity in tax outcomes. Colin Ben-Nathan, chair of the CIOT’s employment taxes sub-committee, said: ‘Maintaining three different categories of workers (employed, “dependent contractor” and self-employed) for employment law but just two for tax (employed and self-employed) is a mismatch which means confusion and inconsistency among taxpayers and their employers will continue.’ Ben-Nathan also repeated the CIOT’s view that ‘the key distortion is employer NICs, which apply to employees but not the self-employed’.

See ‘Good work: the Taylor review of modern working practices’ at

Issue: 1362
Categories: News , Employment taxes