The Chartered Institute of Taxation (CIOT) has welcomed the government’s commitment to bring forward detailed proposals on how frameworks for employment rights and tax could be aligned, but has warned that it will be difficult to do this while ruling out changes to national insurance in relation to employment and self-employment.
The government make the commitment in their Good Work Plan, published today, which sets out planned workplace reforms in response to Matthew Taylor’s review of modern working practices, which was published last year. Taylor’s proposal that “The level of NI contributions paid by employees and self-employed people should be moved closer to parity” is one of just two in his report which the government have decided not to take forward. The government’s plan states that they “Agree – that the small differences in contributory benefits no longer justify the scale of differences in rates of National Insurance contributions, but we have no plans to revisit this issue.”
Additionally the CIOT’s Low Incomes Tax Reform Group (LITRG) has said the Good Work Plan will not do enough to tackle ‘false self-employment’ (see below).
Commenting, CIOT Tax Policy Director John Cullinane said:
“There is much in today’s paper to welcome, especially in terms of protecting low paid workers from exploitation. However it is difficult to see much progress being made on aligning and simplifying employment and tax frameworks within the constraints the government have imposed on themselves.
“In particular, by ruling out changes to the rates of National Insurance Contributions (NICs) in relation to employment and self-employment, the government are denying themselves many of the tools they need to tackle the issues Taylor identified around employment status.
“The biggest element of the differential between the NICs burden on employment as compared to self-employment is in fact employer’s NI. At 13.8 per cent, this creates a significant incentive for employers to try to engage with people ‘off-payroll’. This persists despite efforts to deal with the situation by successive waves of anti-avoidance legislation.
“Similarly, the government’s intention to ‘bring forward legislation to improve clarity on employment status’ is laudable, but risks missing the wider point that different statuses apply for employment rights and tax purposes. We have three different categories of workers (employed, worker or ‘dependent contractor’ and self-employed) for employment law but just two for tax (employed and self-employed). As long as the borderlines between different tax statuses can be fuzzy and open to interpretation, we are likely to continue to see confusion and inconsistency among taxpayers and their employers, and exploitation of workers in too weak an economic position to resist entering into work arrangements that HMRC might be expected to challenge.”
Anne Fairpo, Chair of LITRG, said the government’s proposals will not do enough to tackle ‘false self-employment’:
“LITRG welcomes the government’s plan to legislate to improve the clarity of the employment status tests as well as the guidance and online tools available to help people understand their status. These changes have the potential to benefit many low income workers. However we are disappointed that these measures will not help tackle problems faced by those in false self-employment.
“The government are taking these actions to address the fact that often, given the reality of modern working relationships, employment status is genuinely difficult to establish. However, LITRG ‘s experience is that this is not necessarily the issue in cases of ‘false self-employment’, where self-employment is foisted upon the low paid or otherwise vulnerable workers in circumstances where it is clearly not correct, in order to drive down the engager’s costs and responsibilities, especially employers’ NICs. Even if such workers suspect they should be treated as an employee rather than self-employed, immediate financial need and lack of voice often forces them to accept work on any terms.
“HMRC need to focus on policing the boundary between employment and self-employment as a matter of priority, to dissuade those engagers considering ignoring the rules for their own gain. This would safeguard both workers and compliant businesses that are currently being undercut by unscrupulous businesses saving themselves money via the use of false self-employment.
“Although the Good Work Plan suggests that legislating to put more onus on control will help cut down the deliberate misclassification of workers, this won’t help in many of the false self-employment cases that LITRG see. Improved HMRC enforcement should be a key element of the plan, a response missing this will simply be ineffective for many of those we are most concerned about.”
Notes for editors
The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 18,400 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
Out of hours contact: George Crozier, 07740 477 374)