The findings of the government commissioned Taylor review were published last week, looking at the changes in the modern economy and how employment law and tax must evolve to reflect the emerging gig economy.
Across the industry, responses have generally been welcoming of suggestions that aim to afford gig workers greater rights and protections with regards to sick pay and holiday pay.
Central to the report is the recommendation to create the category of “dependent contractor” in employment law that would replace the category of “worker”. This distinction would be hinged upon the level of control the employee has over their work, meaning that gig economy workers would no longer be able to be classed as “self-employed” and deprived of rights and protections that come with being employed.
The Low Incomes Tax Reform Group (LITRG) in particular welcomes the recommendation to reverse the burden of proof in employment tribunal hearings in cases where status is in dispute. This would mean that the employer must “prove that the individual is not entitled to employee or ‘dependent contractor’ employment rights, not the other way round.”
Greater clarity needed for employment law and employment tax discrepencies
While welcoming what this means for workers rights, Colin Ben Nathan, chair of the CIOT’s Employment Taxes Sub-committee, said the “dependent contractor” category recommendation does not address the disparity in worker categories in tax and law.
He said: “Whatever it brings in fairness for the worker, unless the tax status of ‘dependent contractors’ is addressed at the same time as their employment and other rights are established, the tax system will remain complex and distorted.
“Maintaining three different categories of workers (employed, ‘dependent contractor’ and self-employed) for employment law but just two for tax (employed and self-employed) is a mismatch which means confusion and inconsistency among taxpayers and their employers will continue. It is crucial that individual taxpayers and employers know what their responsibilities are to HMRC before any such detailed change to the three employment categories goes ahead.
He goes on to advise the government to develop “an overarching roadmap for the taxation of labour in the 21st century” to clarify the government’s five to 10 year tax plans.
Employee and self-employed NICs
One of the key issues identified in the report is the Employer’s NIC, which applies to employees but not the self-employed. As many employees of the gig economy are classed as self-employed, their employer avoids paying this tax.
“The imbalance between the tax burden on employment and self-employment remains very large and may be the biggest issue to be addressed if the tax system is to keep pace with working practice”, Colin Ben Nathan added. “The gap should be narrowed so as to remove incentives for one status over another from a tax viewpoint.”
CIOT, meanwhile, suggested the government could consider broadening the scope of employer NICs and turning it into a wider levy on business costs, so as to not penalise the self-employed, which was the issue with the initial proposal put forth by the Chancellor in the Spring Budget, which was then retracted.
Will this do enough to combat exploitation and avoidance?
Emma Bullen, HR advisor for MHR’s Transactional Services, warns of the potential adverse effects of the “dependent worker” category, as “the rising employment costs could leave some companies with no choice but to reduce the number of ‘dependent contractors’ they engage, potentially disadvantaging individuals who rely on this type of work to fit around other commitments such as study, childcare, and caring commitments for family members.”
LITRG also warns that if the issues with the tax system are not addressed, there will still be opportunities for avoidance.
Robin Williamson, technical director of LITRG, explained: “In the wider context we must consider levelling other areas of the playing field, otherwise engagers may simply turn to different ‘flexible’ working options to help protect their profitability. The root of the problem is that employers’ National Insurance only applies to employees, not self-employed workers, and only above a weekly threshold of £157. Therefore, even if the Taylor report recommendations result in gig workers receiving certain employment rights and a secondary contributor, there will still be attempts to circumvent the rules – for example by the use of short hours contracts – and rather like a cork in water, problems of insecurity for workers could just bob up elsewhere which would be unfortunate.’’
Will the move towards cashless transactions be a burden?
To combat the untaxed cash-in-hand economy, the Taylor review recommends a switch to online platforms such as PayPal. While this may be an easy transition for tech-based jobs such as Uber, LITRG raises concerns that this may add a compliance burden for the genuinely self-employed.
Williamson commented: “The government should avoid imposing burdens on genuinely self-employed individuals who operate alone (such as gardeners, cleaners, those who carry out odd jobs) without ensuring that appropriate exemptions are available. For example, there are currently exemptions from VAT online filing for various categories of people for whom use of electronic methods are not reasonably practicable, and there will be similar exemptions from electronic record-keeping and quarterly online reporting when that system is introduced.”
Conclusion
While the Taylor review takes important steps to address inequalities in the gig economy, industry response shines a light on the need for further tax reform to affect meaningful change. While the Taylor review’s scope was not supposed to include tax, it is clear that tax and employment practice are entwined, and these findings could be a useful springboard from which to transform the modern economy, if the government is willing to take action.