Last year the Office of Tax Simplification was commissioned by the Government to produce a report on employment status. The OTS’s terms of reference commissioned it "to examine the dividing line between employment and self-employment and whether it is drawn in the right place and in the right way”. These terms of reference also expressly instructed the OTS not to consider IR35, the construction industry scheme and the expenses rules for employed and self-employed people. The OTS report has just been published (see link below).
The report contains a range of simplification proposals, but is expressed to be a part of a "long range project". The report does not purport to suggest a "solution" to the employment status issue. The OTS recognises that the report will be something for Treasury Ministers in the next Government. However, the authors of the report anticipate an immediate reaction in next week’s Budget.
The report recognises that an individual’s status as an employee or not is something that affects issues beyond tax such as employee rights, national minimum wage, benefits and credits and pensions auto-enrolment. Indeed, the report recognises that it is often the potential employer that is most interested in knowing the answer; employee or not.
The key recommendations of the report are:
- There should be a joint review between HMRC, HM Treasury, DWP and the Department for Business, Innovation and Skills to explore the possibility of an agreed code of principles on employment status.
- There should be exploration of a set de minimis level for payments to an individual who carries out some activities for a business which would definitely not be an employment.
- There should be exploration of a "safe harbour" basis that balances businesses’ need for certainty with risk to HMRC.
- The idea of a statutory employment test should be taken further.
- There should be a full study into the alignment of tax and NICs payments and benefits across the employed and self-employed.
- The OTS repeats the recommendations made in its Small Business Review that merging tax and national insurance would remove many of the anomalies within the tax system and assist in simplifying issues around employment status by reducing the differentials.
This is the last formal project of the OTS in its current form, and it will be interesting to see if and how the report is picked up in next week’s Budget. However, in his Foreword to the report, John Whiting, Tax Director of the OTS, does say that the OTS hopes to participate in a conference in the summer on the issues raised in the report.