IT SEEMS there are very few in the tax profession who oppose the Office of Tax Simplification’s criticisms of the current employment status regime for tax purposes.
The report by the Treasury body “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.
Advisers and stakeholders from the institutes, legal and accountancy firms and the Association of Independent Professionals and the Self Employed (IPSE) all expressed deep frustrations with the existing “outdated, outmoded and in many ways, unfit for purpose” regime.
Indeed, one adviser noted there are “very real practical problems for businesses arising from the fact that no-one trusts HMRC’s status tool”.
As the OTS rightly points out – and like many other problem areas of the tax code – this situation has come about simply through being outstripped by modern life. People now work more flexibly than ever before, and legislation has failed to keep apace.
The result leaves businesses, individuals and HM Revenue and Customs to wade through case law to establish employment status. It’s a slow, laborious and somewhat ad hoc process, and while special categorisation rules and practices occasionally help, they can and do create anomalies.
So the latest “wide-ranging and radical” recommendations have been largely well received.
In particular, there is momentum growing for the proposal to align the National Insurance (NICs) rates between employees and the self-employed given the number of people moving into self-employment. Currently, the UK boasts five million self-employed workers, and the number is rising rapidly.
Welcomed too by professionals is the a code of principles on employment status; improving HMRC guidance on status; remodelling the Employment Status Indicator tool and giving consideration to developing a statutory employment status test – all of which could go a long way to eliminating the arbitrage, exploitation and confusion surrounding the area.
IPSE, though, is not wholly convinced of the whole package just yet, and on the point of the Employment Status Indicator tool, it calls for “further consideration”.
Despite that, the body was keen to note that its experiences with the tool have not been positive, so it will need to be significantly changed if it is to become of real value to independent professionals and the self-employed.
Of particular interest to many is what the OTS described as a “third way”, which many suggest could be a freelancer limited company, which would afford the self-employed greater protection and help simplify their affairs.
But whatever the details, all stakeholders appear relieved the area is receiving due attention and is being taken seriously, particularly in the run-up to the Budget and the general election. The overriding feeling from advisers is that we’ve not only reached a point where reform is overdue, it’s vital if we want the country to keep up in the global economic race and continue to compete viably.
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