Budget 2017: Employment Status – the focus on change is relentless…

Wed 22 Nov 2017

The Chancellor’s Budget speech did not “go to town on” or even explicitly mention employment status. This may appear odd at first sight given all the indications in the run up to the Budget.

However, the Red Book, as ever, showed that the devil is in the detail and did not disappoint, especially when read together with Government updates published earlier in the week running up to the Budget. These earlier updates included research into SMEs and employment status can be read and the Framework for Modern Employment.

What was announced?

Consultation and consideration were what was announced in the detail of the Red Book. Given the changes made to the governance of IR35 in the public sector, the Government has announced that the Government will:

1. consult on how to tackle non-compliance with employment status and IR35 in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018 – the Government’s view is that initial indications show that as a result, public sector compliance is increasing, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company; and
2. publish a discussion paper as part of its response to Matthew Taylor’s review of employment practices in the modern economy, exploring the case and options for longer-term reform to make the employment status tests for both employment rights and tax clearer.

Therefore, although employment status did not take centre stage in the Chancellor’s speech, it remains very much in focus and any changes are likely to have significant impact, not just on employers and businesses, but on productivity, skills, pay, investment and how the UK moves forward in a rapidly changing modern world.

As an aside, following on from the public sector changes that were introduced in April 2017, there was also mention of NHS Pay Awards and Pay Reviews. This is likely to have some interaction with the IR35 changes and how the Government wishes to encourage more organisations and individuals to consider status, pay and productivity more critically, as well as reduce the advantages between employment and self-employment / being engaged via an intermediary.

Conclusion

Surprisingly, there was no explicit mention of this in the speech but the details which follow highlight this as an area where careful consideration is most definitely required. We welcome the further consultation and that no major announcement have been made that would go live more immediately, demonstrating that lessons may have been learnt from the changes introduced to the Public Sector’s governance of IR35.

How the future consultations interact with the recommendations in the Framework for Modern Employment will be key, especially given the hints regarding zero hour workers, businesses that engage predominantly with self-employed workers and not to undermine National Minimum Wage.

We eagerly await more detail and understanding more about how the “future” of work will be shaped by the changes to how employment status is governed.

For further information please contact Ian Goodwin – Ian.Goodwin@mazars.co.uk  or Vaneeta Khurana –  Vaneeta.Khurana@mazars.co.uk   or your local Employment Tax specialist.