For a review that was purportedly not going to have a tax focus, this report is wide ranging in its proposed reform of the tax system.
Interestingly, leaks of the review before its publication suggested that taxation of the self-employed should be brought in line with other employment forms in the medium term. However, the final copy of the report suggests this be introduced in the long term. This suggests that the Treasury and HMRC consider such reforms may be more complicated and time consuming than the Taylor review team envisaged. This subtle time-line change is not surprising given the government’s recent U-turn on increasing NICs for the self-employed.
The main recommendation is to rename the legal term "worker" with "dependent contractor" and to introduce new legislation and guidance to make it easier to distinguish a dependent contractor from an employee. Following the recent line of employment status cases in the Employment Tribunal, the review recommends that if an individual is being controlled and supervised, they should be deemed a dependent contractor and entitled to rights such as sick pay and holiday pay.
The review also recommends a new statutory status test for tax and employment rights purposes thus reducing a layer of complexity. The recommendation is that being employed for tax purposes would cover both employees and dependent contractors. If implemented, these recommendations would mean gig economy employers will be liable to pay Employers' NICs.
As a result, it is hoped a full review of the tax system will be imminent so that the key issues can be properly considered.
The right to the National Minimum Wage (NMW) for dependent contractors could be watered down as the review recommends gig economy employers adopt a piece-rate method of payment rather than an hourly rate of pay. The suggestion is that gig economy employers be compelled to provide real time data on what it is possible to earn at that time so dependent contractors have a more informed choice of whether to work and that there be a requirement to prove it is possible to earn at least 20% more than NMW. Our initial thoughts are that this could be complicated to legislate for and enforce.
The report contains a section on tackling the hidden economy which is akin to a declaration of war on cash in hand payments. The proposed solution is a cashless government-accredited platform for the payment of self-employed labour. This suggests that earnings for the self-employed could flow through into a HMRC platform under Making Tax Digital, thereby increasing compliance in this field without increased cost.
As expected from previous press releases, an outright ban on zero hours contracts is not encouraged but instead a right to request a fixed hours contract should be introduced and a premium rate of NMW considered for those on non-guaranteed hours contracts.
These are just recommendations at this stage and will need to be debated in parliament before any might be implemented. We would hope that momentum for this initiative is not lost given the backdrop of the Brexit negotiations as interested parties would welcome some clarity on these issues sooner rather than later.
Graham Farquhar, employment tax partner at RSM