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UK Employment Practices Review Falls Short, Say Tax Experts

by Amanda Banks,, London Wednesday, July 12, 2017

The UK Government-commissioned independent review into employment practices has received a mix response from tax and employment experts.

The Taylor review, which was published on July 11, 2017, was commissioned by the Government to examine workers rights and responsibilities, and employer freedoms and obligations, in the modern working environment, with a particular emphasis on the "gig economy." One of its main recommendation was that the three existing categories of workers under employment law be maintained, but that "workers" - who are often difficult to categorize under employment law - be reclassified as "dependent contractors."

Whilst specific tax changes were formally outside the remit of the review, the report said that treating different forms of employment more equally in the tax system "would be fairer, more economically efficient and support better quality work."

"It would also reflect the reality of the modern UK labor market," it said.

It added that National Insurance Contributions (NICs) for the self-employed were proportionately lower than the combined contributions made by employees and employers.

However, the Chartered Institute of Taxation (CIOT) said that further work will still be needed to ensure fairness and simplicity in tax outcomes under the proposal to retain the separate employment categories.

"Whatever it brings in fairness for the worker, unless the tax status of 'dependent contractors' is addressed at the same time as their employment and other rights are established, the tax system will remain complex and distorted," said Colin Ben Nathan, Chair of the CIOT's Employment Taxes Sub-committee.

"Maintaining three different categories of workers (employed, 'dependent contractor' and self-employed) for employment law but just two for tax (employed and self-employed) is a mismatch which means confusion and inconsistency among taxpayers and their employers will continue."

Meanwhile the Institute of Economic Affairs (IEA) said that "devising a new status intermediate between employee/worker and self-employed will add to the already considerable complications of defining work status and rights, particularly if a new National Insurance rate is added which differs from the existing self-employment rate to reflect new benefits available to gig workers."

It added that merging income tax with National Insurance could avoid complications in the tax system and reduce the incentive for employers to contract out work.

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