LONDON: The consultation also considers a statutory test for employment rights purposes and whether the test for tax purposes should be aligned with the test for employment law purposes. It also explores whether the current test should be simplified and whether ‘workers’ should be subject to employment taxes.
An employment status test which is easier to apply will be welcomed by employers,” said Chris Thomas, an employment tax expert at Pinsent Masons, the law firm behind Out-Law.com. “Many employers find themselves on the wrong end of HM Revenue & Customs employer compliance reviews just because they haven’t properly understood or applied the current tests or because the inherent ‘greyness’ leads to different interpretations.” The consultation follows the Taylor review, which made recommendations in July 2017 for changes to employment laws and practices to better reflect modern working patterns. The consultation on employment status was published alongside the government’s response to the review, with three other consultation papers exploring how best to give effect to the review’s recommendations. One of the Taylor review’s recommendations was that the government should “replace the minimalistic approach to legislation with a clearer outline of the tests for employment status.” “If the government decides to change the test for tax purposes, it is not clear whether or how this would apply in relation to existing employees. It could cause havoc in some sectors if employers have to reassess the status of all their existing staff based on new tests. If not, then running two parallel systems would be complex,” Chris Thomas said. For employment rights, there are two main employment statuses: employee and worker. All employees are workers, but not all workers are employees and workers who are not employees have more limited rights. These include paid holidays and to be paid the minimum wage but workers do not have other employment rights such as the right to maternity leave or the right not to be unfairly dismissed. Recent ‘gig economy’ cases in the courts, such as that involving Uber drivers have centred around the distinction between workers and the self employed, who have no employment rights.
For tax purposes the only relevant distinction is between employees and the self employed, with workers who are not employees being treated as self employed, so that tax is not deducted under the PAYE system and their engager does not pay employer’s NICs. There are currently separate pieces of legislation defining employment status for employment rights, income tax, and national insurance contributions (NICs). In each case the legislation ultimately relies on whether a ‘contract of service’ exists, but this is not defined and so over the years the courts have interpreted the legislation and developed tests to determine employment status. The case law is sometimes interpreted differently for tax and employment purposes.
