This week the Government presented its Good Work Plan as the next step towards implementing many of the recommendations from the Taylor Review of Modern Working Practices that was published in July 2017 (you can read our summary here).
Among other proposals, the Government is, sensibly, aiming to tackle one of the major inconsistencies in the current system. For tax there is a two-tier employment status framework of employed and self-employed. However, for employment rights there is a three-tier framework that consists of two statutory employment statuses of employee and worker, and a third category of self-employed. It is currently possible that someone with worker status for rights could be employed or self-employed for tax, and this causes no end of confusion.
Included within the Good Work Plan is a commitment to bring forward detailed proposals to align the employment status frameworks for employment rights and tax. The Plan also includes proposals to legislate to provide more clarity on the tests used to determine employment status.
Whilst these announcements are welcome, the Government has refrained from tackling one of the other glaring anomalies – namely the disparity between the amount of National Insurance Contributions (NIC) payable by the employed and the self-employed.
One of the findings in the Taylor Review was that the current tax system influences the choices that people make in relation to their employment status. Despite agreeing with the Taylor Review's conclusion that the differences in contributory benefits no longer justify the scale of differences in NIC rates, the Government confirmed that it has no plans to revisit the issue. Clearly the scars of the u-turn on NIC reforms announced in the 2017 spring Budget have not yet healed but it does call into question the likely effectiveness of the changes in addressing the issue of bogus self-employment.
The Good Work Plan also confirms that the Government will legislate to improve the clarity of the employment status tests and will also look to improve the HMRC guidance and tools available to help determine status. Whilst this is welcome news, the plan currently commits to merely ‘bring forward’ legislation to improve clarity on employment status supported by commissioned independent research to find out more about those with ‘uncertain’ employment status. The Plan also touches on the fact that Matthew Taylor recommended that more emphasis should be put on the ‘control’ test when determining employment status with less emphasis placed on the often notional right of substitution.
Determining employment status and specifically the tests to be applied will be an integral part of the preparations for medium and large businesses gearing up for changes to the off payroll IR35 legislation announced in the 2018 Budget. Continuing uncertainty around the timing and nature of changes to the employment status tests at this time is unwelcome and it is to be hoped that the Government will publish further details of their intentions with specific timings for change at the earliest opportunity.