Employment Status

The Office of Tax Simplification (OTS) has recently published its report on Employment Status which totals 188 pages.

The aim of the OTS review is to try to make employment status less of a complex area and for businesses and individuals to have greater certainty when faced with making a decision on employment status.  They came up with several recommendations and proposals; the key ones are summarised below:

  • A joint review between HM Revenue & Customs (HMRC), HM Treasury (HMT), Department of Work and Pensions (DWP) and the Department for Business, Innovation and Skills (BIS) to look at the possibility of developing an agreed code of principles on employment status. It was also suggested that at the very least the joint group could look to develop better guidance on employment status which is aimed at the average individual and small business.
  • A review into the categorisation regulations (the National Insurance legislation governing employment status) with a view to abolishing them.
  • The possibility of introducing a de minimis level of payment or period of time where employment status need not be considered.
  • HMRC to set up a specialist employment status helpline and to allocate more of its resources to employment status and to provide specialist training to staff.
  • HMRC guidance needs to be updated to keep pace with current working practices and to include more ‘real life’ examples.
  • The idea of a ‘safe harbour’ where businesses can rely on a ruling by HMRC but still protecting HMRC from the risk associated with being bound by a ruling made on inaccurate or incorrect information.
  • The HMRC Employment Status Indicator Tool (ESI) needs to be reviewed, the case law it relies on should be updated and it should be made more user-friendly.
  • The introduction of a withholding tax on payments made to those not treated as employees.
  • The idea of a statutory employment test which would apply to tax and employment rights.
  • The need for a full and proper review of expenses and benefits.
  • Merging tax and national insurance.
  • Increased transparency of employers’ NICs.
  • The concept of a ‘third way’ was considered and although it would almost certainly add further complexity to the area, the idea was not dismissed entirely.

It is important to note that the above suggestions are embryonic in nature and represent the potential start of various discussions, they are not definitive proposals.  As with most ‘reviews’ of this type the end result is uncertainty, more discussions and a series of ideas that lack any real detail.  It will be interesting to see which of these ‘proposals’ are taken forward (if any) and in particular it will be interesting to see whether the joint review to establish a ‘code of principles’ will bear any resemblance or even take into account the well-established (for over 40 years now) common law test.

We will keep you up to date with any further developments.  Anybody wishing to read the report in its entirety should follow the link here

Published: 03.19.15 - Posted In: Latest News