Contractors can expect no quick wins from the Office of Tax Simplification’s (OTS) Employment Status Report. However, the report acknowledges that the rise of contracting and freelancing means that there is a growing problem around employment status that must be addressed.
OTS tax director John Whiting explains: “It rapidly became clear that, as we had hypothesised, the tax system is still in many ways stuck in an out-of-date mindset: of categorising workers as either employees, firmly on the payroll, or self-employed, with the traditional jobbing plumber in mind.
“This made sense in the 1950s and 1960s but the huge growth in freelancing as a way of life and work doesn’t fit readily into this traditional model.”
ContractorCalculator CEO Dave Chaplin is concerned that the OTS believes that a statutory employment test may be possible: “The report suggests that it is possible to create a statutory employment test. I don’t think that it is. It would be too subjective and gamed far too much.”
In acknowledging that contractors and freelancers don’t fit into the existing models of employment and self-employment, the OTS also set out to investigate whether there is a ‘third way’, but concluded that further work is required.
“We have also looked at the idea of a ‘third way’ – an intermediate status between employed and self-employed,” said the OTS. “There are possibilities in this route but there are also downsides and problems. Overall we are not recommending it as a way forward but we do not dismiss it and would welcome further input addressing some of the issues we highlight.”
The OTS’s recommendations include:
- “Better guidance for those who need to resolve an employment status issue
- A route for those with a genuine difficulty to talk to an expert quickly and get a ruling – though that raises the question of how to manage demand as well as guarding against abuse
- Developing rules for an evidenced ‘audit trail’ to give certainty and protection against reopening of prior years.”
The OTS report includes considerable work on the issue and we will publish further analysis and commentary in the coming days.