OTS Report on Employment Status

The Office of Tax Simplification ('OTS') issued its report on Employment Status last week, an issue described in the report as "a complex and wide-ranging subject that many have said has no real solution – and that if we did manage to ‘solve it’, we should immediately move on to world peace as we’d clearly be on a roll".

The OTS anticipates "an immediate reaction in the coming Budget" but also recognises that the report "will be in the in-trays of Treasury Ministers of the next Government" so actions may be delayed.  The OTS would like to know what interested parties think of their conclusions, as they plan to prepare a summary of comments received to sit alongside the report.  So please let Amanda know your thoughts on the report and its conclusions so she can feed this back to OTS.

The report concludes that the main driver for businesses in relation to employment status was risk management i.e. being clear on employment rights.  Three key points emerged from the review:

1. The tax (mainly NICs) differential between employees and the self-employed is significant; as long as it exists there will be pressures on the employment status boundary from those who wish to gain an advantage or manage the risk of getting it wrong.
2. Often of greater significance to business is the issue of employee rights.
3. Because the dividing line for employment status is blurred rather than clear, it brings a lack of certainty and invites attempts to ‘game’ the rules.

OTS did not find any 'quick wins' during this review, but believes "there are improvements that could and should be made to HMRC’s guidance and procedures" which include: 

• better guidance for those who need to resolve an employment status issue;
• a route for those with a genuine difficulty to talk to an expert quickly and get a ruling; and 
• developing rules for an evidenced ‘audit trail’ to give certainty and protection against reopening of prior years.

This may encompass an enhanced status for HMRC’s online Employment Status Indicator tool, and OTS also sees a possibility for the tool being further developed "possibly into more than one system (to cater for different industry sectors)" which is one area that BUFDG discussed with OTS.  The report includes an entire chapter (chapter 8) devoted to the ESI tool. 

The report also recommends consideration of a 'de minimis' rule to make things easier for employers - "The principle would be that someone who is paid under a set amount or works for less than a defined period would never be regarded as an employee".

And the report also calls for a statutory employment test to be explored further, as well as considering use of a withholding tax.

The 183 page report includes a useful 6 page Executive Summary, and 4 pages highlighting all the recommendations throughout the rest of the report.  Whether you read the entire report or just the summary and recommendations, please do let Amanda know your thoughts about the report's conclusions. We would like to thank Andrea Marshall, Caroline Williamson, Kerry Sykes and Harriet Latham for their assistance in our dicussions with OTS, as well as Roger Bennett for the time he spent seconded to OTS for this project.