At the Autumn Statement last week the Government announced that it had responded to the Office of Tax Simplification (OTS) report on employment status originally published in March and it was “taking forward the majority of its recommendations”. Now, 9 months after the March report, a letter from HM Treasury has emerged indicating which of the OTS recommendations it is taking forward and which it has rejected. A few of the more notable acceptances, considerations and rejections are considered below.
Out of the 28 recommendations included in the March report the Government has agreed to 17 of the recommendations and is considering a further 6.
A few of the more practical, useful ideas that have been accepted include HMRC issuing best practice guidance on what to do when engaging a self-employed individual, setting up an employment status helpline and upgrading the employment status indicator tool. All these will be welcomed by practitioners and business alike. Any further guidance which clarifies the fuzzy lines between self-employed and employed is greatly appreciated.
For the future, the Government is still considering the idea of a statutory employment test. The original report suggested a couple of approaches, such as a test which reflects all relevant case law (although the report acknowledged this may be impossible due to a number of variables in case law) or a simple set of rules with “rough edges”.
When a summary of responses to the consultation was published in July respondents commented that even a simple, short set of rules could prove to be draconian and it is likely that enforcement would be difficult. This letter doesn’t offer anything further on this statutory employment test except to say it is considering it. Whether this is taken any further remains to be seen. Any statutory test is going to be extremely difficult to draft and there are likely to be many (probably too many) differing views on how to implement it. Perhaps this is one to keep an eye on, but not to get too excited about at the moment.
The Government is also considering a system of withholding tax for payments to non-employed individuals whose status is unclear. Again, the only information available is to say that the Treasury is considering it. The OTS report suggests that it could offer protection for business against unexpected liabilities and it might help individuals with budgeting for their tax bills. Individuals who fall within the ‘unclear status’ category are unlikely to want the “help with budgeting” so it will be interesting to see how far this idea goes.
Introducing de minimis level of remuneration before needing to consider employment status has been rejected. HMRC consider that this would increase the risk of avoidance.
The abolition of any distinction between ‘office holder’ and ’employment’ has also been rejected. When the summary of responses was published in July there was a lot of commentary on office holders which the OTS concluded supported the original report and the need to review rules and guidance around office holders. Getting rid of any distinction is not going to happen as HMRC believes it’s a legislative term supported by case law underpinning important distinctions for tax and NICs. Although it looks like we won’t see a convergence of office holders and employees, this doesn’t mean that further reviews around the guidance and rules won’t happen, as also suggested by the OTS.
Quite when this glacial pace of progress will deliver any of the additional guidance or development on some of the OTS suggestions is unknown. The letter states that improvements to the Employment Status Indicator are expected in April 2016. However, it really doesn’t seem to be moving quickly. The OTS report was published in March and HM Treasury have only just decided on which recommendations to move forward with so who knows, it could be another 9 months before the recommendations are further developed!
A Cross-Government Working Group for Employment Status is also being established to help address the complications on employment status for the purposes of employment law vs tax law. This Working Group will consider the “benefits of and barriers to an agreed set of employment status principles and a statutory employment status test” – isn’t that very similar to what the OTS was asked to do?
Updated guidance and HMRC helplines will help in the meantime, but simplifying employment vs self-employment is going to be a long process.