Could a statutory employment status test be on the cards? The Government’s response to the OTS’s review of employment status

Written on 26 Nov 2015

Following the Autumn Statement announcement that the Government would be pushing forward with some of the recommendations made in the employment status review by the Office of Tax Simplification (OTS), more detail has been available here. The uncertainty surrounding determining employment status and the potential divergence between employment law and HMRC on this difficult issue will now be the subject of a review by a Cross-Government Working Group for Employment Status during 2016 with a stated remit to “consider the benefits of and barriers to an agreed set of employment status principles and a statutory employment status test”. Given the complexity of the issues involved, any substantive outcome on this point is unlikely to be imminent.

We may also see developments surrounding the taxation of termination payments with the Government still currently considering responses on this issue.

Other headline points include: 

  • There will be a review of the employment status of “difficult to categorise” roles including GPs and other healthcare professionals, and TV and film professionals (where there have been many tax disputes over the years, with professionals in those industries claiming to be self-employed in a way which HMRC increasingly wishes to challenge).
  • The Government will consider a CIS-style “withholding” tax system for all entities which use self-employed workers.
  • Improvements will be delivered to HMRC’s Employment Status Indicator tool by April 2016 and further work carried out through 2016/17. This will include HMRC looking at the “possibility of producing versions of the tool for specific industries” and “whether they could stand by the tool’s results if it has been properly and reasonably completed”.
  • An employment status portal should be created which will include “all the government’s guidance on employment status, including both employment rights and tax”, together with a helpline for businesses to discuss specific queries with an HMRC officer. 
  • The Government is to continue the review of the tax rules for travel and subsistence expenses with “a view to modernising these rules to reflect current practices”.
  • There will also be a call for evidence on the current tax treatment of employer-provided living accommodation.  
  • The creation of a “new” category of self-employed worker – often called the “third way”, and requested by, for example, sharing economy platforms who believe old master-servant employment tests are not applicable to the modern economy, has been rejected

The response also accepts the OTS’s recommendations to conduct a full study into the alignment of tax and NICs payments and benefits across the employed and self-employed and a full review of taxation for small businesses, including limited companies, partnerships/limited liability partnerships and sole traders.  Employee taxation will be included within these reviews. With such a wide ambit no doubt we shall see more developments as these reviews progress.