Taylor Review: Government expands workers’ rights, but tax issues remain

Taylor Review: Government expands workers’ rights, but tax issues remain

The government proposals provide gig economy workers with greater rights, but experts say the refusal to re-examine NICs or tax classifications may be a missed opportunity

Taylor Review: Government expands workers’ rights, but tax issues remain

The government has released its “Good Work” plan in response to the Taylor Review, laying out a range of proposals to transform modern working practices in line with the emergence of the gig economy.

Along with the proposals the government has launched 4 consultations on key areas covered by the review: Employment status, increasing transparency in the labour market, agency workers and enforcement of employment rights.

Business secretary Greg Clark recognises that with the gig economy comes immense opportunities, but also risks. These consultations will thus “cover the legal framework underpinning employment rights” along with “the enforcement mechanisms in place for when things go wrong.”

He added: “We want to embrace new ways of working, and to do so we will be one of the first countries to prepare our employment rules to reflect the new challenges.”

Worker rights

While the gig economy touts numerous benefits that suit modern life, such as flexible working hours, a sustained criticism has been the vulnerability of workers who are burdened with job insecurity and a lack of rights in the workplace.

Ed Molyneux, CEO and co-founder of FreeAgent, explained that research conducted in conjunction with The Freelancer & Contractor Services Association (FCSA) revealed that “UK micro-businesses and freelancers said they would be more interested in receiving sick pay than any other statutory benefit.”

Responding to issues surrounding worker rights, the government’s proposals went even further than the Taylor Review, enforcing workers’ holiday and sick pay for the first time.

The government also proposed a list of day-one rights, including holiday and sick pay entitlements, as well as a new right to a payslip for all workers. All workers will also be given the right to request a more stable contract.

Enforcement actions

To protect workers’ rights the government will introduce a new naming scheme for employers who fail to pay employment tribunal awards, and quadruple employment tribunal fines for employers showing malice, spite or gross oversight to £20,000. The government will also consider increasing penalties for employers who have previously lost similar cases.

For unpaid interns, further action will be taken to ensure they are not doing the job of a worker.

Government rules out NICs changes

The government has said that changes to the rates of tax or NICs is “not in scope” of this employment status consultation.

In the Spring Budget 2017, the Chancellor attempted to raise NICs for the self-employed but withdrew the measure in the face of public backlash. Industry experts suggest that the government should revisit this.

Anne Fairpo, The Low Incomes Tax Reform Group chair, explains that while taking action against employers engaging in exploitative practices is positive, “better still would be to remove the incentives for such exploitation.”

She explained: “It often seems to be the desire to save tax, and employers’ NICs, that leads to false categorisation of workers and much of the labour market abuses that the Taylor Review attempted to deal with.”

John Cullinane, CIOT tax policy director echoed these comments, adding that the difference between NICs between employment and self-employment “creates a perverse incentive for employers to try to engage with people ‘off-payroll’.”

By refusing to consider NIC changes, Cullinane says: “the Government are denying themselves many of the tools they need to tackle the issues Taylor identified around employment status”.

Aligning legal employee status with tax

The evolution of the gig economy has brought to light some friction between the employment status and tax classifications of workers.

Currently there are three categories of workers under employment law (employed, worker and self-employed) but just two for tax (employed and self-employed).

The Taylor review suggested the ‘worker’ category change to ‘dependent contractor’, but this still leaves a mismatch between legal and tax classifications.

Michael Steed, co-chair of ATT’s technical steering group, welcomed the government consultation on employment rights, which will look at this. However, he cautioned that while aligning these classifications would simplify matters, it could also cause problems.

He explained: “For example, if ‘gig economy’ workers who are currently classed as self-employed were to be treated as employees this would increase National Insurance contribution costs both for the workers and the businesses they work for.”

Steed suggested that this raises the possibility of “developing a new test for tax purposes which is not based on employment.” He warned that although starting over from scratch may sound tempting, care would have to be taken to ensure changes did not further complicate the system.

He added: “Regardless of which path is taken for tax, we would urge the government to bear in mind the implications of Making Tax Digital (MTD) for income tax, which could be introduced as early as April 2020 for the self-employed.”

“Changes which could alter whether or not somebody is classed as self-employed should not be made to coincide with the major changes involved in the introduction of MTD.”

What’s next?

While these proposals make progress, experts suggest this is only the beginning of a long process towards modernising workplace practices. Bill Longe, head of employer tax at RSM said: “Today’s government response to the Taylor Review will inevitably lead to a shake-up in the UK labour market – but not just yet.”

“There will now be a period of consultation and reflection which may in due course result in some of the more eye-catching measures being watered down.”

Related Articles

How to bring an allegation of sexual misconduct in the workplace

Career How to bring an allegation of sexual misconduct in the workplace

1m Kirsty Churm, Employment lawyer, Kingsley Napley LLP
PwC replaces Deloitte as Linklaters auditor after Arsenal lawsuit

Audit PwC replaces Deloitte as Linklaters auditor after Arsenal lawsuit

3m Alia Shoaib, Reporter
Supreme Court rules against Pimlico Plumbers in landmark employment case

Legal Supreme Court rules against Pimlico Plumbers in landmark employment case

4m Alia Shoaib, Reporter
Eight things we learned about GDPR at Accountex 2018

Legal Eight things we learned about GDPR at Accountex 2018

4m Lucy Skoulding, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

6m Alia Shoaib, Reporter
10 steps to helping clients sell their land

Legal 10 steps to helping clients sell their land

8m Alex Harrington-Griffin, TrustedLand
Deloitte’s audits of Hezbollah-linked bank to be examined by Dubai court

Audit Deloitte’s audits of Hezbollah-linked bank to be examined by Dubai court

8m Alia Shoaib, Reporter
How will Uber’s employment appeal loss affect its business model?

Legal How will Uber’s employment appeal loss affect its business model?

11m Alia Shoaib, Reporter