Government responds positively to Taylor ‘Good Work’ review but omits tax and NIC alignment

The government has published its response to Matthew Taylor’s Good work report into modern working practices. As well as a response document, government has published four consultation documents to take forward the project, while ruling out changes to rates of tax and national insurance contributions (NIC).

Tax and NIC were not within the original terms of reference of the review, but as we believe that NIC has, arguably, an even stronger influence on modern working practices than employment law, we (and others) met Matthew Taylor and, as evidenced in Good Work, convinced him that no review of modern working practices would be complete without considering NIC.

Steve Wade, Chairman of ICAEW Tax Faculty’s Employment Taxes and NIC Committee said:

“We are delighted that the government has responded positively on the employment law aspects but the absence of other than cursory reference to the reform of employment/self employment tax – or more precisely NIC – as part of such an overarching review into the world of work is disappointing. This is, however, perhaps not surprising given the Government’s earlier manifesto commitments.

Matthew Taylor in his recommendations ‘Seven steps towards fair and decent work’ rightly referred to the ‘need to make the taxation of labour more consistent across employment forms’ as NIC costs have such a major influence on how labour contracts are structured. By not addressing this issue the government is putting at risk the likelihood of reaching a lasting solution to the problem.

This doesn’t, however, necessarily mean that there will be no tax or NIC impact. Any change in the status rules could change the employment status of certain individuals and consequently their tax and NIC bill

It is also unclear how this review will interact with the proposed consultation on off payroll working in the private sector. Employers will not want new rules to be introduced and then shortly afterwards amended for a new status test.”                           

Among the changes being proposed we note also that:

  • The current three tier approach will be retained, but the group who are eligible for worker rights, but who are not employees, will be renamed as ‘dependent contractors’
  • There will be a new test for dependent contractor status, placing more emphasis on control and less on personal service
  • There will be a further attempt to set the tests for employment status in law.

As noted above, in addition to the government response, four consultation documents have been published to explore in detail some of the recommendations made by the review. The individual documents are on the following sets of recommendations:

  1. Employment status

This consultation is seeking views on whether the options proposed in Good Work could achieve more certainty and clarity for businesses when determining employment status, particularly in relation to the realities of the modern labour market.

It is also seeking to understand the potential impacts and implications of those proposals and whether there are alternative approaches that could better achieve these aims. For tax, this consultation considers the tests that define the boundary between those currently taxed as employees and those who are taxed on a self-employed basis.

However, changes to tax and NIC rates are not within the scope of the consultation.

  1. Agency workers

This consultation looks at:

  • how to increase transparency of contractual arrangements for agency workers
  • how umbrella companies or intermediaries could be brought within the scope of the Employment Agency Standards Inspectorate (EAS)

It also seeks to gather evidence on the level of abuse of the ‘Swedish Derogation’ with consideration of whether EAS’ remit should be extended to cover the enforcement of the Agency Workers Regulations.

  1. Enforcement of employment rights

This consultation:

  • sets out the government’s intention to enforce a wider range of basic employment rights on behalf of vulnerable workers
  • seeks evidence on the extent of the problem faced by low paid workers in accessing sick pay and holiday pay to help target enforcement efforts
  • sets out the government’s plans to simplify the enforcement process for employment tribunal awards
  • outlines the government’s intention to introduce a naming scheme for unpaid employment tribunal awards
  • takes forward the review’s recommendations that employment tribunal judges should be obliged to consider stronger punishments for employers who ignore previous tribunal judgments
  • seeks views on how best to implement these measures.
  1. Measures to increase transparency in the UK labour market

This consultation seeks views on the recommendations in Good Work that focus on increasing transparency between employers and individuals in the UK labour market. For example, there could be legislation to extend the right to payslips to all workers, and to improve the quality of the information provided on those payslips.

It could also extend the right to a written statement to workers as well as employees. Employees are currently entitled to receive a written statement within 2 months of starting work, setting out basic details about the employment relationship, such as the name of the employer, the place of work, hours of work, and pay including holiday pay, sick pay and pension.

If you have comments on any of the above, please email peter.bickley@icaew.com or post a comment below.

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