The tides are changing for taxation of ‘workers’

16 May 2017

Earlier this month amidst the media coverage of the general election, the Government’s Work and Pensions Committee issued a report outlining that the ‘self-employed’ should at least be given ‘worker’ employment status, unless the employer can prove otherwise.

In its report the committee found that increasingly, some companies are using self-employed workforces as cheap labour, excusing themselves from both responsibilities towards their workers and from substantial National Insurance liabilities, pension auto-enrolment responsibilities and the Apprenticeship Levy. The committee was particularly concerned with the ease with which companies are able to classify their workforces as ‘self-employed’ - a status which both fails to protect workers from exploitation, and in all likelihood increases strain on the welfare state.

The Low Incomes Tax Reform Group welcomed the Committee’s recommendations, and added that the denial of employment rights stemmed from a number of factors. Namely these were the worker’s lack of knowledge, and reluctance to challenge their treatment because they need to work, as well as the businesses involved having little fear of any action being taken against them.

There will be considerable focus on this area over the coming months, especially following the publication of Matthew Taylor’s review into work practices.

So should employers who continue to engage workers be worried of future challenge? Well, there is a telling paragraph in the report which employers should take heed - ‘where there is three work statuses for employment law: self-employed, worker and employee, there are only two for tax purposes; self-employed or employed’.

So whilst a ‘worker’ would have the employment rights commensurate with that status, the Work and Pensions Committee has stated ‘there is no ‘worker’ status in tax law, tax status would be unchanged’. In effect this would place the burden of proof of employment status on the company, rather than the worker, as it currently stands.

Now this is only sound bites of where the current government is possibly heading with their thinking. But employers, not only those in the gig economy, would be well warned to keep informed of the way the tide is flowing in respect of the taxation of ‘workers’, as early indications are that it could result in many being considered as employees for tax purposes.

For more information please get in touch with Graham Farquhar, or your usual RSM contact.