Matthew Taylor’s much anticipated review of Modern Working Practices was published on 11 July 2017 and there is much to digest. The wide-ranging recommendations encompass many aspects of the working relationship – not just for those working in the gig economy – and, if put into practice, will herald the most ambitious overhaul of working conditions in recent times. It is now for the government to decide how to take forward the myriad of recommendations – no mean feat with Brexit negotiations already in progress.
The full report can be read here.
Many of the recommendations were anticipated, notably better clarification of employment status and greater protection for gig economy workers and others finding themselves ill catered for by legislation conceived before current engagement models were anticipated.
Other recommendations go further than many anticipated, including those calling for significant reforms to the employment tribunal process. The aims of the report are commendable and, if achieved, will create a better work economy for all. But as ever, the devil is in the detail, and providing a transparent framework for assessing employment status has been a perennial and complex problem.
For individuals, understanding your employment status is key to knowing what employment protections you have. For employers, understanding employment status is key to knowing what protections they have to afford. For both, understanding employment status is critical in ensuring the correct tax, National Insurance and even pension contributions are calculated and paid.
As Chartered Accountants + Business Advisors, at AAB we were keen to review the report and recognise the implications for our clients, ranging from multi-national employers to one-man self-employed “gig workers”, particularly as the ever-changing field of employment status is an area we regularly advise on, and more so now than ever with HMRC’s constantly moving goal posts.
For those yet to trawl through the 115 page report, we have picked out a few of the key recommendations made to the government that we see having most impact on business and individuals if implemented:
Establishing employment status
Replace the minimalistic approach to legislation with 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.
AAB Comment – having a statutory definition, rather than relying on often outdated case law and the “MICE” test, will benefit employers and individuals greatly as it provides decisive answers and allows for certainty around what is currently a huge grey area. HMRC reviews on status will no longer be about both parties trying to show how the facts fit their desired status, but instead about how the facts fit with legislation.
Online status tool
Build on legislative changes to further improve clarity and understanding by providing individuals and employers with access to an online tool that determines employment status in the majority of cases.
AAB Comment – HMRC’s current tool, although improved, does leave a lot to be desired. We would also like the government to take this one step further and where a status has been checked using the tool, for HMRC to be legislatively bound by that decision.
Consider how tax tribunal and employment tribunal rulings could be applied across jurisdictions – for example, in the shorter term and until the systems are aligned, the government could ensure that where a tribunal determines that an individual is an “employee” for tax purposes, that decision is also binding for employment law purposes.
AAB Comment – seems like common sense, but there will be reluctance to this proposal from various stakeholders who do not believe that employment rights and tax status of workers are intrinsically linked.
Managing gaps in service
Extend, from one week to one month, the relevant break in service for the calculation of the qualifying period for continuous service and clarify the situations where cessations of work could be justified.
AAB Comment – if the qualifying period is extended it will no doubt lead to greater costs for employers, however, the security this would bring to individuals will likely be deemed to outweigh the additional cost burden.
Paying the right tax
Continue to work with providers to ensure that self-employed people have access to online tools that support compliance with the principles of ‘Making Tax Digital’ even if they do not meet the minimum statutory threshold.
AAB Comment – we would like to see this strengthened to protect employers so that where an individual has, in good faith, paid the tax that was due on a self-employed basis, and they are subsequently deemed to be employed, either via a challenge themselves or by means of a HMRC compliance review, the employer should not be penalised and required to pay any additional tax due as a result of a change in status.
The Review believes that the principles underlying the proposed national insurance (NI) reforms in the 2017 spring budget are correct. You will remember the government did a dramatic U-turn on the controversial proposal of increasing contribution levels from 9% to 11% for the self-employed. The Taylor review maintains that the level of NI contributions 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.
AAB Comment – the concept of there being fewer tax advantages for the self-employed is certainly not new, and many maintain that in principle, all income should be taxed in much the same way, whether earned from employment or from self-employment. Certainly, if that were the case it would massively increase revenue for the exchequer whilst burdening employers with even more costs. Whether or not the current government is strong enough to push these recommendations through, given how quickly the National Insurance hike was dropped, remains to be seen.
As you can see – employers are sitting in darkened rooms with good reason. The journey to providing “good work for all” will be long and complex, and whilst the aim of the recommendations is not to over-regulate or place an unreasonable burden on employers, it is difficult to see how the recommended changes can be brought into effect without employers grappling with considerable new regulation and guidelines. We will be closely monitoring how the government takes the recommendations forward, and shapes a modern workforce that is future proof.
We are helping countless businesses to prepare for all of the issues discussed in this article, and if you would like to discuss any of these further please contact Charlotte Stewart, Employment Taxes Manager, (Charlotte.Stewart@aab.uk) or your usual AAB contact.