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OTS Review Employment Status

New projects for Office of Tax Simplification

As part of the ongoing mission to create a simpler and fairer tax system the Office of Tax Simplification (OTS) has been tasked with carrying out reviews of employment status and also tax penalties, with a view to producing a report in time for next year’s Budget.

According to the OTS, the boundary between employment and self-employment no longer reflects modern working patterns, particularly in recent years. Many people have multiple jobs and can be classed as employed in one whilst self-employed in another. The rise of the freelancing business model has also caused some to suggest this is a ‘third way’ between employment and self-employment.

It is the significant tax and NIC differences between the two ways of working that drives business behaviour, so the OTS belief. This is exemplified by the large number of PSC’s currently in operation.

The OTS previously highlighted the complexity of distinguishing between employment and self-employment in its review of reliefs and small business back in 2011. The first stage of the ‘small business review’ concentrated specifically on IR35 with recommendations for improving its administration. This latest review however will not consider IR35. Neither will it look at the Construction Industry Scheme or the expenses rules for the employed and self-employed. Instead it will assess:

  • Whether the UK’s current employment status tests result in real uncertainty and if so, for what sections of the workforce and in which areas.
  • Sectors and types of engagement with the labour market where difficulties in administering the tax rules are relatively common for any or all of those involved with the tax system.
  • How well current rules and guidelines fit with situations where individuals have multiple roles; whether the key distinction is between working and not working.
  • Trends in employment law.
  • HMRC guidance and advice.
  • The special cases regulations, primarily as evidence of existing difficulties with the main tax rules.
  • The scope for simplification through the increased use of digitalisation.
  • International comparisons to the UK approach to dealing with employment status and the experience of other countries in managing their approach.

The review will also have regard to:

  • The impact on employers and employees of any changes.
  • The cost/benefit to the Exchequer.
  • HMRC operational impacts.
  • Interaction with employment law, including EU aspects.
  • The ongoing project on PAYE and NIC integration.
  • Fairness and consistency of treatment of taxpayers; and
  • The need for anti-avoidance measures.

Interested parties will be invited to share their thoughts and opinions with the OTS.

Although the final report will contain any appropriate suggestions that could be advanced quickly, it is more likely that if significant reforms are recommended, then these will be carried forward to May of next year for the next government to consider.

By Andy Vessey


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4 thoughts on “OTS Review Employment Status”

  1. Hephaestus

    Abolish income tax and tax expenditure instead whilst exempting pensioners, disabled etc

    Very, very simple!

    Problem… testicular fortitude required in a land of none!

    And a very influential lobby against living in Parlaiment

  2. argebarge

    “Abolish income tax and tax expenditure instead whilst exempting pensioners, disabled etc”

    So who would pay for the NHS, education, defence, police, prisons, infrastructure etc …

  3. Hephaestus

    Revenue gathered from tax collected on expenditure

    It says “abolish” income tax” and “tax expenditure” INSTEAD

  4. Tony Soprano

    “So who would pay for the NHS, education, defence, police, prisons, infrastructure etc …”

    Who’s to say current levels of spending on them are even justifiable? That said, he did say tax expenditure, i.e. the VAT or a sales tax. A flat tax. So that answers your question. Perhaps even combine it with a basic income guarantee, then scrap most welfare provisions altogether.

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