Tax Laws Need More Than Quick Wins

Employment status goes to the heart of employment law and the tax system. Individuals and employers must know which employment status applies to ensure the right protections are administered from holiday pay to the national minimum wage. Employment status also affects the taxes that an individual and their employer pay. It is a highly complex area, however, as detailed in reviews by the Office for Tax Simplification and the Department for Business, Innovation and Skills in 2015. It’s now back on the agenda following the Matthew Taylor review which highlighted the importance of ensuring our employment status system keeps pace with the changing world of work. His observations were in response to the rise of the gig economy and the increased numbers of self-employed individuals in the UK today.

This week we met with officials from the Treasury and HMRC to discuss the government’s employment status consultation and feed into their review. We debated the nuances of employment law and tax from the pros and cons of codification to the alignment of tax and employment rights. There was consensus on the need for a level playing field but also concern that changes could inadvertently damage the flexibility of the UK’s labour market. It is essential that the government does not rush ahead with changes as there are no ‘quick wins’ in this space. As ever, IR35 was a hot topic. The Check Employment Status for Tax (CEST) tool was highlighted as an example of how difficult it can be to condense years and years of case law into an algorithm.

While IR35 was not within the scope of the consultation under discussion, we highlighted the extent to which the off payroll rules are part and parcel of employment status. It is essential that the lessons of the public sector reforms and the IR35 legislation more broadly are factored into the review. We are still waiting on the consultation on IR35 in the private sector to be published. At the IR35 Forum last week, HMRC emphasised that the consultation is drafted and will be released imminently along with research on the rollout of the changes in the public sector.  We are expecting it to be released in the next few weeks.

We will continue to stress in our ongoing engagement with the Treasury and HMRC that introducing changes to IR35 in the private sector in 2019 would be premature as there are still issues with implementation in the public sector that need to be rectified. The employment status consultation should also be allowed to run its course fully. We’ll continue to monitor developments and work with other business bodies like the CBI to push the government to make improvements to the system in the public sector and plan effectively for any changes to the private sector. We do not want to see a repeat of the public sector chaos.

If you would like to feed into our work on employment status or IR35, please get in touch. As soon as the IR35 consultation is published we will be seeking input from members and working with other business bodies to stress the need to well-planned and evidence-based approach.