Yesterday, the long-awaited Taylor Review of Modern Working Practices was unveiled. And as expected, there was plenty to get our teeth stuck into when examining the effect it could have on UK freelancers and contractors.
The general consensus is that the Taylor Review values the flexible workforce, in many cases calling for greater protection and rights to those who choose to work for themselves. And the review was quick to stress the importance and need to simplify the way in which employment status is determined. As we all know, this covers controversial and complicated IR35.
“For individuals, not knowing your employment status means not knowing what employment rights you deserve. For businesses,this situation can lead to uncertainty about their responsibilities and what can be demanded from workers. The situation does not need to be this complicated.” The Taylor Review
Andy Vessey, Head of Tax at Qdos Contractor, agreed: “Given recent, controversial changes to IR35 in the public sector, it’s now imperative that public sector organisations and agencies understand the difference between a genuine employee and a genuine freelancer or contractor. HMRC’s ESS Tool, built to determine whether a contractor sits ‘inside’ or ‘outside’ IR35 might well provide an answer, but not necessarily always an accurate one – many cases because of imposing conditions not supported by case law in some of the status tests. Simplifying legislation would begin to clear muddy waters somewhat, but may not be straightforward to design, as history suggests.”
But to eradicate any confusion, the legislation must be updated, to reflect what is considered to be an accurate reflection of the main characteristics of status, such as personal service, control and mutuality of obligation. Again, Andy Vessey and Qdos Contractor welcomed this:
“We welcome The Taylor Review’s arguments that legislation should be updated to reflect that of the courts. For accurate, fairer decisions around employment status, joined-up thinking and a legislation which takes into account changes in the sector is needed. However, status tests should be more distinct and not open to wide interpretation, so as to give certainty to both worker and engager.”
As expected, the review dived deep into the current issues affecting the UK’s 4.8million self-employed people, a main theme of which was giving rights to ‘dependent contractors’.
“The status of ‘dependent contractor’ should have a clearer definition which better reflects the reality of modern working arrangements, properly capturing those more casual employment relationships that are on the increase today – an individual who is not an employee, but neither are they genuinely self-employed.” The Taylor Review
On the face of it, this makes sense, as Andy Vessey explained: “The Taylor review rightly recognises the rise of the ‘gig economy’, and the changing forces at work in the labour market. While the review touches on the need to differentiate between dependent contractors and genuinely self-employed workers, it could perhaps elaborate.”
“A fundamental difference exists between workers such as Uber drivers and Deliveroo riders – who might well need protection – compared to the vast majority of the UK’s professional freelancer and contractor workforce,” he said.
He argued, that typically, skilled contractors do not face the same kind of issues which these ‘dependent contractors’ might.
“Professional freelancers and contractors typically command higher rates of pay, enjoy more control in the way they work and in the vast majority of cases, are genuinely self-employed. Interestingly, the review suggests a move away from personal service and towards control for determining what constitutes a ‘dependent contractor’. This is a move alluded to in much of the IR35 consultation over the past couple of years.”
Given recent changes to public sector IR35, a portion of contractors have recently found themselves ‘inside’ IR35 – fairly or unfairly. The Taylor review outlines the need to give these contractors a similar status and protection of employees.
“Ultimately, if it looks and feels like employment, it should have the status and protection of employment.” The Taylor Review
Without hesitation, Andy Vessey agreed, and highlighted the need for businesses and end-users to stop abusing the system.
“If a contractor is caught by IR35 and made to pay taxes similar to employees, then it is absolutely correct that they should be given the similar privileges to employed workers. Currently, contractors working inside IR35 are in limbo, unable to fully enjoy the financial benefits of working self-employed, and without any of the privileges employees receive.”
He went on to say, “For too long now, end-users have been happy to engage contractors so as to avoid employers NIC and bestow other employment rights. However, in the contractor’s hour of need in an IR35 enquiry, many of them are unwilling to support the freelancer, leaving them to the mercy of HMRC and safe in the knowledge that there will be no repercussions for themselves.”
The effectiveness of HMRC’s ESS Tool has been questioned time and time again, as contractors are seemingly inside IR35 one day, and outside the next. The Taylor Review called for a new tool, to help individuals understand not just their employment status, but their rights too.
“Government should develop and create a free to use online tool that provides individuals with an indication of their employment status, similar to the Employment Status Indicator tool for tax purposes.” The Taylor Review
Concerned by the unreliable nature of the current tool in place, Seb Maley, Qdos Contractor CEO issued caution; “Given that HMRC’s existing ESS Tool has delivered unreliable and in many cases contradictory results for public sector contractors since its release, we’re sceptical of another tool being discussed so soon. A combination of technology and expert advice is required to accurately set employment status, with input from contractors too. The suggested alignment of employment status and tax status would however hopefully provide some clarity between the two, to avoid a surplus of tools being used.”
The Taylor Review contained some bold ideas for UK contractors, along with some less well-received plans of action. But for want of something everyone can agree on, it highlighted the need for extra Government support for those brave enough to strike out alone and work for themselves.
From giving the UK’s 4.8million self-employed people advice as and when they need it, to helping them save and plan for their futures, the report argued that the nation’s population of freelancers, contractors and entrepreneurs needs the full support of the new-look Government.
“Government should continue to develop advice and support for people embarking on a self-employed career to ensure they have the greatest chance of succeeding.” The Taylor Review
And unsurprisingly, Seb Maley agreed; “As Qdos Contractor has previously stated, the new-look Government has an opportunity to rethink the support they offer to the UK’s 2million freelancers and contractors. This should start with a change in attitudes towards the self-employed, some of whom – particularly contractors – have been unfairly tarnished as tax-avoiders.”
“The majority of independent professionals choose to work for themselves to enjoy more freedom and a better worklife balance, not to unfairly exploit the current tax system. Furthermore, in the case of contractors, the majority have been forced to incorporate because of the demands of big business.”