Taylor review of modern working practices

Wed 12 Jul 2017

Mathew Taylor’s review of modern working practices has been published, making a number of recommendations. While its remit did not cover tax changes, the report does discuss the tax incentives in the system influencing the way people chose to work (chapter 9). It suggests a closer alignment of the employment status legislation and tax legislation so that any differences are reduced to the ‘absolute minimum’. Some aspects of the report’s recommendations are discussed below.

Report comments on tax

Included in the discussion on incentives influencing choice of method of working are the following comments:

“…we believe that treating different forms of employment more equally in the tax system would be fairer, more economically efficient and support better quality work. It would also reflect the reality of the modern UK labour market.”

With respect to the proposed Budget 2017 changes that were dropped, the report comments:

“The Review believes 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 while the Government should also address those remaining areas of entitlement – parental leave in particular – where self-employed people lose out.”

The report recommends further work be done to examine ways in which the tax system might address the disparity between the level of tax applied to employed and self-employed labour.

The report is supportive of the making tax digital project and would welcome an online tool to support gig economy workers in paying the right tax. It encourages HMRC to continue to work with software providers on this.

The report also recommends the Government accredit a range of platforms to support the move to a cashless society, suggesting this would make a significant contribution to reducing the tax gap from the hidden economy. More specifically it suggests: “HMRC should link up with others across government to examine whether the underlying principles of conditionality could be applied more broadly in this space, supporting both self-employed people and consumers in their choices.”

Report comments on employment status

Included in other parts of the report are the following:

“As a first principle, the Government must make legislation clearer. The employment statuses should also be distinct and not open to as much interpretation as currently, nor be so ambiguous that only a court can fully understand the basic principles. The law should also ensure that where individuals are under significant control in the way they work, they are not left unprotected as a result of the way their contract is drafted. It should not be as difficult as it is now for ordinary people or responsible employers to seek clarity on employment status.”

The report recognises the difficulty of definitively stating the basis for employment status , but suggests there is an overwhelming case to tackle this sooner rather than later. It suggests there should be a clearer outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail.

“Government should retain the current three-tier approach [employee, worker, self-employed] to employment status as it remains relevant in the modern labour market, but rename as ‘dependent contractors’ the category of people who are eligible for worker rights but who are not employees.”

National minimum wage

The report recognises the need not to undermine the national minimum wage (NMW). It suggests that in re-defining ‘dependent contractor’ status, Government should adapt the piece rates legislation to ensure those working in the gig economy are still able to enjoy maximum flexibility whilst also being able to earn the NMW.  It also suggests applying a higher NMW to contracts where the NMW cannot be guaranteed.

Mazars comment:

The OTS focus paper highlighted that others have called for clarification of the employment status of people who use online platforms to find freelance work.  The House of Commons paper on self-employment and the gig economy suggested employers adopt a ‘worker’ status by default for hired labour, instead of ‘self-employed, unless it wished to deviate from this when it would have to justify the deviation.  As a result there may well be a move to legislate the different forms of working and provide for further regulation around pay rates.  A closer alignment of employment law and the tax law as it applies to employment would certainly help a gig worker to have a greater understanding of their tax obligations.

The Taylor review, the OTS comments and the House of Commons report are indicators of a growing consensus that reforms of and a possible widening of the labour tax base can be expected in the near future.

For further information please contact:

Vaneeta Khurana, Mazars National Head of Employment Tax: +44 (0)7881 283643

Your local Mazars employment tax specialist