TaxCorporate TaxDoes the Taylor Review sufficiently address the gig economy?

Does the Taylor Review sufficiently address the gig economy?

The findings of the Taylor Review have now been published, closely looking at employment law, employment tax and how current regulations should adapt to reflect the emerging gig economy

Does the Taylor Review sufficiently address the gig economy?

Several months ago, the government commissioned the Taylor Review to undertake “an independent review of employment practices in the modern economy”.

With Matthew Taylor, former adviser to Tony Blair, at the helm, the findings of the review have now been published, and closely look at employment law, employment tax and how current regulations should adapt to reflect the emerging gig economy.

Employment law

With the rise of the gig economy, there have been increasing concerns about the classification and legal status of workers, who are often burdened with job insecurity and a lack of workers’ rights.

The Taylor Review reflected these changes in the modern economy by suggesting the creation of a new category of worker: “dependent contractor”. If an employee is supervised and controlled, they would no longer be able to be classed as self-employed. This new label would ensure basic employee rights such as sick pay and holiday pay for workers of companies such as Uber and Deliveroo. Although Taylor initially stated he did not wish to burden businesses with extra costs, it is unclear how these rights would be extended without extra costs incurred.

Taylor affirmed that the report was not suggesting an abolishment of zero hour contracts, but rather giving workers the right “to request a fixed hours contract” and be given “a premium for any noncontractual hours worked and compensation for shifts cancelled at short notice”.

Stephen Morrall, partner at Hunters Solicitors, dismissed the need for the new category of “dependent contractor”, and said: “The retention of zero hour contracts is good for employers and maintains a high degree of flexibility in the workforce. There is a risk that employees will be exploited, but one hopes that the market will sort out the good employers from the bad ones.”

The review also suggested that gig economy employers should switch to a piece-rate method of payment as opposed to an hourly rate of pay, and should be required to prove that it is possible to earn at least 20% more than National Minimum Wage. Morrall commented that this would likely be complicated to legislate and enforce.

The report also addressed the need to align tax and employment law definitions of workers. Currently “employed” and “self-employed” categories exist for tax purposes and an additional category of “worker” exists in employment law. The review points to the increasing number of cases in the Employment Tribunal as evidence of the need for reform.

Implications for tax

Although initially claimed that tax was not within the scope of the review, much of the report’s findings directly relate to the tax system, which is not surprising considering the ways in which the gig economy and employment tax are inextricable.

Taylor called for an end to the cash-in-hand economy, pointing to the fact that jobs such as window cleaning and child-minding are usually untaxed. The report claimed that in the year 2013-14, the “hidden economy” cost the UK £6.2bn in tax – 18% of the total tax gap. The review thus suggests that such fees be paid through trackable platforms such as credit cards or PayPal.

According to Graham Farquhar, employment tax partner at RSM: “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.”

While this would benefit the economy by generating more tax revenue, it would have a negative effect on consumers for whom costs for these services would be higher.

The report also addressed the disparity between taxes for the self-employed and employees, as under the current system they may be taxed a different amount for the same work. The review described this as “not justified, or sustainable, nor is it conducive to the goal of a good work economy.”

Employers are also currently incentivised to use flexible workers as they are then able to avoid paying Employer’s National Insurance Contribution, at 13.8%, which the Taylor report called “the £60bn elephant in the room”.

This disparity in NICs for the self-employed and Employer’s NIC was addressed by chancellor Philip Hammond in the Spring Budget, as he tried to closer align the two, but the proposal was swiftly removed following public backlash that self-employed individuals were being penalised.

KPMG suggested that the chancellor “should take another look in light of what Taylor is saying”.

The firm added that extending Employer’s NIC to the self-employed is not necessarily the answer, and perhaps: “de-coupling Employer’s NIC from jobs and levying it instead on business costs as a whole, as Business Social Contributions, might be worth considering.”

Farquhar of RSM noted that the final copy of the report suggested aligning taxation of the self-employed with other types of employment will be a long-term undertaking, reflecting the understanding that it is a complicated task.

Conclusion

The review is not without its detractors, with trade unions criticising it for not going far enough. The union Unite said the report “spectacularly failed to deliver” on its promises to combat exploitation and insecure work.

Ultimately, the Taylor view is a set of recommendations which will have to be scrutinised by Parliament before becoming law. Prime minister Theresa May said: “While avoiding overbearing regulation, we will make sure people have the rights and protections they need”, falling short of committing that these recommendations will manifest in any form of legislation.

Considering the government’s Brexit-heavy agenda and current politically turbulent status, it is possible that producing legislation out of this review will not be a priority – or worse, it may well become a venue for another partisan battle – and these findings could be left to gather dust.

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