The Taylor Review of Modern Working Practices

In November 2016, Matthew Taylor was commissioned by the Government to undertake an independent review of employment practices in the modern economy. He was asked to make specific recommendations and promote a national conversation, and explore how we can all contribute to work that provides opportunity, fairness and dignity.

The review considered the implications of new forms of work, driven by digital platforms, for employee rights and responsibilities, employer freedoms and obligations, and the existing regulatory framework surrounding employment. As originally commissioned, it did not include tax.

The report, Good work: the Taylor review of modern working practices, is now published.

ICAEW staff and active members met with Matthew in December 2016, specifically to explain why the review would be incomplete if it did not reference tax, and we followed this up with a written response ICAEW Representation 30/17. Following discussions with ICAEW and others, some aspects have been included in the report.

The report’s recommendations focus on three challenges:

  • Tackling exploitation and the potential for exploitation at work;
  • Increasing clarity in the law and helping people know and exercise their rights; and
  • Over the longer term, aligning the incentives driving the nature of our labour market with our modern industrial strategy and broader national objectives.

 

Summary of recommendations affecting tax

  • Tax and employment law status definitions should be brought closer together
  • Employment law status ‘worker’ should be replaced by Dependent Contractor (DC). This would be a new status, not quite the same as worker is now, and in arriving at this new definition, ‘control’ should be of greater significance than any requirement to ‘perform work personally’
  • Greater reliance on law through new legislation would reduce the need for tribunals
  • More clarity is needed to help people understand their tax and employment status, both in terms of obligations and rights. An online tool for employment law might assist with this
  • Self employed individuals should pay more National Insurance Contributions (NIC) in exchange for the enhanced benefits they now receive
  • Making Tax Digital (MTD) will be a positive step and will help businesses pay the right amount of tax. It should be brought in as soon as possible
  • Cashless payments to all businesses would help close the tax gap.

Throughout the report recommends greater clarity and simplicity.

It acknowledges that some of the changes being recommended may move the current classification goal posts and addresses the possibility of unintended consequences as people may be moved to different categories. For example, workers in the gig economy may have used substitution rights in their contracts to substantiate their self employed status both for law and for tax. They may find themselves reclassified as DCs. The report acknowledges this, but does so in the context of loss of flexibility which many works and engagers want.

The report is clear that workers doing the same work should pay the same levels of tax, and this means NIC in particular. In return they should all receive the same benefits in return for what they pay. It notes that most do already, especially since from 2016, their NIC contributions earn them the same rights to accrue the State pension entitlement. As Ministers have said recently that self employed rates of NIC will not be brought closer to employee rates, this is going to be politically sensitive. It does however make sense since following the abolition of class 2 NIC, it was always the expected intention that class 4 would have to increase. The report notes that raising public awareness will help to get public support for the necessary changes.

We welcome the statement regarding business that ‘Businesses should structure their workforces in the most appropriate and efficient way possible, without the tax position distorting the decision.’

An online employment law status indicator tool is an ambitious suggestion, particularly given the challenges still being faced by HMRC in its attempts to adopt that approach for tax status.

We were surprised to see Making Tax Digital (MTD) feature in the report, but it welcomes the Making Tax Digital proposals, noting that it ‘expects the Government to continue with MTD reforms as soon as possible’. In the event, we now understand that the implementation of MTD is being slowed and scaled back to a more manageable timetable, see separate news item, Welcome new plan for Making Tax Digital.

The report also notes that imposing cashless transactions as a way of enforcing tax could help tackle the tax gap. This seems a big step and could harm many small businesses which do not want to use internet banking. While the tax gap is a undoubtedly a problem, imposing an unwelcome burden on compliant small businesses would be unwelcome.

There was a lot in this report and we will have to wait and see how the Government responds to its challenges and suggestions. Certainly, these problems are not going to go away on their own and we can look forward to more discussion and consultation in these areas.

Anonymous