The report resulting from the Taylor Review of Modern Working Practices (the Taylor Review), ‘Good Work‘, was finally published on 11 July 2017.

The Taylor Review’s primary focus was new ways of working, the ‘gig’ economy, worker rights and responsibilities, and employer freedoms and obligations. Although tax was not (formally at least) within its remit, it was inevitable that in compiling their report the Taylor Review would encounter issues of taxation… indeed, such is the importance and depth of interaction between ‘employment’ issues and taxation, the Report would have been notably incomplete if it had not addressed tax as a critical component in a system where “all work in the UK economy should be fair and decent with realistic scope for development and fulfilment”.

Perhaps understandably (and yet still unfortunately) the Taylor Review does little more than place ‘tax’ on the “too difficult” pile, kicking it down the line for further consideration at a later date. And further consideration is urgently required.

While acknowledging (correctly) that, “the nature of the tax system acts as an incentive for practices such as bogus claiming of self-employed status”, the two main, rather anodyne, conclusions of the Taylor Review, so far as tax issues are concerned, are that:

  • “renewed effort should be made to align the employment status framework with the tax status framework to ensure that differences between the two systems are reduced to an absolute minimum”, and
  • the Government should: Seek to examine ways in which the tax system might address the disparity between the level of tax applied to employed and self-employed labour”

Both statements broadly reflect aspirations that have been long-held by most businesses and advisors and recommendations previously made by various professional bodies, including, for example, the Institute for Fiscal Studies (IFS).

On aligning the ‘employment status framework’ and the ‘tax status framework’, the Taylor Review does go a little further, ruling out imposing the tax system’s binary division between employment and self-employment on employment law, preferring instead to develop a new, ‘dependent contractor’ test. For employment purposes, the new category of ‘dependent contractor’ would refer to people who should be eligible for ‘worker’ rights but who are not employees; i.e., in broad terms, where a firm has a ‘controlling and supervisory function’ over a worker. For tax purposes, the recommendation of the Taylor Review is that: “being employed for tax purposes naturally means an individual is either an employee or a dependent contractor”.

But that conclusion does not ‘naturally’ follow. The implication is that persons falling within this new category should also be subject to National Insurance contributions (NIC) at the rates applicable to employed individuals, and their ‘controlling and supervising’ firm, subject to employee NIC. The recommendation is clearly designed to catch the business structures adopted by the some of the big names associated with the ‘gig’ economy. Taking the recommendation to its logical conclusion, however, means that there is a clear risk that a much broader category of, genuinely, self-employed persons will also be affected. Changes in employment law, made on the back of the Taylor Review, therefore, could have wide and unintended tax consequences.

On eliminating the tax disparity in the treatment of the employed and the self-employed, the Taylor tantalizingly hints there are “various ways in which the system could start to move to a more consistent level of taxation on different forms of labour”. Unfortunately, it doesn’t actually go on to develop what the ‘various ways’ might be. That is deeply frustrating and somewhat skirts around the core question.

Of course, as Chancellor Philip Hammond found out in March when he included a proposal to bring the NIC treatment of the self-employed and the employed into closer alignment in his Budget Statement, and immediately faced a firestorm of criticism and was forced into a personally damaging u-turn, popular tax solutions to these problems are going to be difficult to come by. It is, therefore, perhaps unsurprising that the Taylor Review chose against delving too deeply into the tax implications of its recommendations. But those recommendations only serve to highlight the, increasingly critical, need to address some of the most pressing inconsistencies in the UK’s tax code at the earliest possible opportunity… unfortunately, with the attention of the government currently drawn ‘elsewhere’, it is difficult to see that opportunity presenting itself in the near future.