OTS report attacks lack of clarity of self-employment

THE LACK OF DEFINITION around self-employment for tax purposes has been roundly criticised by the Office of Tax Simplification in its latest report.

The report “lays bare the complexity of the current system”, which includes a variety of tests for employment used for tax, employment law and pensions auto-enrolment and has no definition of self-employment in law.

The result leaves businesses, individuals and HM Revenue and Customs to wade through case law to establish employment status, while special categorisation rules and practices occasionally help, but can and does create anomalies.

Should employers make an error, significant tax and National Insurance bills await, leading many to hire contractors only through intermediaries.

As a result, the OTS has recommended “better employment status guidance, in one place with more real-life examples”.

It has also called for help for individuals and small businesses on what action a business should take, the documentation it should have when engaging a self-employed individual to preclude or reduce the burden of HMRC enquiries. A dedicated employment status helpline with greater resource should also be established, it said.

OTS tax director John Whiting (pictured) said: “The tax system is stuck in an out-of-date mindset. In the 1950s and 1960s the distinction between employees and the classic self-employed jobbing plumber was clear and easy. Nowadays working patterns are hugely varied, freelancing is a way of life for many and that simple split doesn’t work often enough.

“This causes uncertainty, risk and administrative burdens all round. We have heard from businesses about transactions being delayed or even abandoned due to the risk posed by employment status uncertainty.”

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