Would tax alignment help post-Uber status uncertainty?

Out-Law News | 16 Mar 2021 | 9:51 am |

Chris Thomas tells HRNews about an overlooked proposal in the Taylor Review designed to bring employment status certainty

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  • Transcript

    Could a change to tax laws be the answer to the biggest employment issue affecting the gig economy – uncertainty over a worker's employment status? This is the issue that led to 5 years of bitter litigation between Uber and its drivers until that ended on 19 February with the Supreme Court's decision that the drivers were, as they had always claimed to be, workers, not self employed. That was a landmark case which received huge publicity on that day with cameramen and journalists stationed outside the courts and interviews with the drivers who'd brought the case. 

    Since then there has been a lot of talk in employment circles about where this case leaves the gig economy. Matthew Taylor, famous for the Taylor Review, tweeted on that day:  'The courts are doing the work the Government has failed to do in clarifying and tightening the criteria for genuine self employment'. That was a reference to the government's reluctance to take up the recommendation in his report to introduce a new category of worker and prevent the need for the sort of litigation we've seen with Uber and many other big-name gig economy employers. We covered this in some detail last month, when the Uber decision came out, and Diane Nicol, who was on Matthew Taylor's panel and helped write the report, explained how that new category might help. She told this programme the reason the government hadn't adopted it was, essentially, because it was too difficult and when I put it to Diane that, in fairness to the government, simply relabelling workers as 'dependent contractors' won’t achieve much if the distinction between the categories remains as difficult to pin down as it is now.  This was her response to that: 

    Diane Nicol: "That's a good point, and certainly it's not going to be an easy issue to address. However, I think what we need to remember is that we in the Taylor Review didn't just recommend that. One of the issues that pushes people into 'self employed versus employed' status is the current tax regime, which is binary - you're either employed or you're self employed. So we thought that if you had a tax regime that was more closely aligned with the three tier employment regime, and you try to bring them closer together so that tax wasn't a driver for pushing people into a self employed status, then we would get more traction, if you like, in relation to this and we could achieve more clarity around who was a dependent contractor and who was genuinely self employed because those engaging them wouldn't be pushing them into the self employed category in order to avoid paying NICs and various other and benefits to them."

    So that's the idea – aligning the tax system more closely to the employment law framework. So let's look at that in more detail with the help of tax specialist Chris Thomas. Chris joined me by video-link from Birmingham and I started by asking him what, exactly, the Taylor Review was driving at:

    Chris Thomas: “Yes. So I think I think what the Taylor Review was looking at was the difficulties that we've had over a number of years really in relation to the interaction of tax and employment law because obviously, for employment purposes, we've got these three categories. We've got the self employed, we've got workers, and then we've got employees whereas in tax terms, of course, we don't have that concept of worker at all, you're either employed or you're not and so a worker who doesn't meet the criteria to be an employee will just be classed as self employed as anybody else would. I think the point that the Taylor Review was making was it causes confusion having this distinction between what applies for employment and what applies itself for tax but, more than that, there's actually a wider issue in the tests that would be used by, say, a tax tribunal or HMRC and the tests that might be applied by an employment tribunal aren't necessarily entirely aligned - they are to a point, but not entirely. You've also got potential confusion  from one decision to another because it's all based on common law and it's very difficult to be fact specific and so it's quite difficult to know, and for an employer to sort of have any confidence, in what the outcome would be a particular case."

    Joe Glavina: "As you know, this particular recommendation from Taylor has not been accepted by the government so where do we go from here?"

    Chris Thomas: "It's a bit difficult to say. I mean, it would be it would be nice, and I think a lot of practitioners would welcome, the government grasping this perhaps and looking at rather more structural reform than perhaps has been the case up until now. There are two things really. First of all there's the question of trying to address this inherent subjectivity that I mentioned a moment ago, and that really would require some sort of legislated tests that give some certainty as to when someone's treated as employed and when they're not but, in fairness, that's obviously a very difficult thing, it's not something that's going to be easy to achieve because it's a very complicated area and very difficult to legislate for, but it would be good to see something happening that respects. The of course the other key point is the distinction between how people are treated for tax purposes if they're employed and how they're treated if they're self employed because, as I think the Taylor Review has mentioned, that drives perhaps some rather artificial behaviour in terms of how people are categorised in the workforce."

    Joe Glavina: "Last question Chris. Diane was, of course, on Taylor's panel and she talked about removing the tax incentives hirers enjoy which causes them to push people towards self employment. What are the incentives?" 

    Chris Thomas: "I think the key distinction is National Insurance Contributions really, because that's the big one where the treatment of someone who's self employed and someone who's employed varies very considerably, particularly the employer NIC. At the moment there is a big incentive to structure it as a self employment for that reason. Now obviously we've seen actions being taken and IR35 is a good example of that, where the government is trying to tackle what it sees as avoidance in this area by trying to tackle people trying to avoid being treated as employed when in the fact they are but I think to really get to the bottom of this I think it may require something further and a closer alignment of the two see regimes and some years ago some people may remember Philip Hammond did try this when he was Chancellor. He tried to align the National Insurance treatment to a degree and I think it's fair to say he had a lot of rather fierce and vocal opposition to that and eventually it got dropped. There's probably an interesting question as to whether the government is now willing, perhaps, to grasp the nettle and have a further go at that perhaps bearing in mind that the pandemic may have changed things to some extent in opposite in that there has been a lot of government support provided to the self employed and does change the political dynamic and make that easier for them to do? I think the cynic in me says, well, the government's track record on this sort of thing is not great and what they tend to do is just layer on yet more anti-avoidance rules on top of what there already is, rather than really doing the kind of root and branch back to basics sort of structural review."

    Earlier you saw a clip of Diane Nicol in discussion with me about the Taylor Review and where we are with that. You can watch that interview in full. The programme is called 'Time for clarity on employment status after Uber ruling' and it is available now for viewing from the Outlaw website.