We at the Office of Tax Simplification welcome the publication of “Good Work”, the Taylor Review of Modern Working Practices. We examined the tax aspects of different ways of working in our Focus Paper on the gig Economy which was issued in June. We agree that there is a great deal of uncertainty and complexity in having two kinds of status for tax purposes, employed or self-employed, and three kinds of status for employment law purposes, employed, a “worker” who is not employed and self-employed and other definitions for other purposes such as entitlement to benefits. We also agree that the boundaries between the different kinds of status are not always clear or consistently applied. We also found that the growth of the gig economy poses risks to the exchequer as well as administrative issues. For example, it is much easier for HMRC to deal with one large employer than 1000 individual self-employed gig economy workers.
There is a clear incentive for individuals to be self-employed, where the choice is available, as less national insurance contributions will be payable in many cases. We examined the case for alignment of income tax and national insurance contributions last year and set out a seven step plan to move this forward. We have looked at employers’ national insurance contributions and more generally at payroll taxes and asked whether a payroll tax might not be a more effective approach in the longer term. The absence of employers’ national insurance contributions in relation to self-employed workers is clearly a very big question which is touched on in the Taylor review. We also looked at the reasons why some choose to provide work through corporate vehicles. In some circumstances, the tax system can offer a further incentive to the individual to incorporate, while in others it may be that the worker is required by the person for whom he or she is working to incorporate in order to make life simpler for them. We agree that incorporation should be motivated by commercial considerations such as legal protection rather than the tax outcome and there are many reasons why people might choose to incorporate other than tax considerations. We proposed a new way in which a business could be structured, the SEPA or Sole Enterprise with Protected Assets, which would enable the owner of an unincorporated business to protect the family home, for example. We fully agree with Matthew Taylor that these are difficult areas, with many “winners and losers”, and that careful thought is needed in taking the issues forward. If national insurance contributions were moved to an annual, cumulative and aggregate basis, like income tax, some 5.5 million would pay more national insurance contributions and 7.6 million would pay less. Any change of this order of magnitude is not to be undertaken lightly! However, some incremental change in measured steps, as we set out in our seven step plan, would take us in the right direction.
The “Good Work” report develops some interesting ideas about the use of technology platforms to provide facilities for workers in relation to pensions, regulatory requirements such as immigration checks as well as tax. We are very interested in the ways in which technology can make the “user experience” better for taxpayers and look forward to continuing to engage as the debate evolves. In the US, for example, tax software providers now provide free software for some people engaged in the gig economy as non-employed workers to capture their data contemporaneously and to prepare and file their tax returns. Here in the UK, software is available for the instant capture of receipts using a smartphone. We will continue to think about the ways in which currently available technology might be adapted to provide a simpler solution for gig economy workers.