Flexing those working terms

A review is underway to modernise the UK’s employment and tax policies, including whether even the various means of describing workers are still valid.
Colin Cottell investigates

Sat, 1 October 2016 | By Colin Cottell

FROM OCTOBER'S RECRUITER MAGAZINE

A review is underway to modernise the UK’s employment and tax policies, including whether even the various means of describing workers are still valid. Colin Cottell investigates

At the start of September an independent review of flexible working in the UK was launched by think-tank the Social Market Foundation (SMF). Sponsored by PRISM, a trade body for service providers and payment intermediaries in the temporary labour market, the review will take into consideration everything from the ‘gig’ economy and ‘Uberisation’ to contracting, and consider whether the UK’s tax, benefits, pensions and employment legislation framework is fit for purpose.

The SMF expects to produce interim findings later this autumn, with a final report, including recommendations, due to be published in February next year. 

“The SMF has been tasked with assessing how the world of work is changing and how policy should adapt as different forms of employment, self-employment and contracting take shape,” explains Crawford Temple, PRISM’s chief executive.

The launch of SMF’s wide ranging review came as the Office of Tax Simplification, the government’s own advisory body on tax, called for a review of the taxation of flexible workers. This came as part of its response to HM Revenue & Customs (HM Revenue & Customs) consultation on off-payroll working in the public sector. Temple tells Recruiter he welcomes the OTS’s review. “It’s an important intervention at a crucial time,” he says. 

However, he notes that given the OTS’s remit is limited to tax, by necessity its call for a review is limited to the area of tax policy rather than SMF’s wider review, or the strategic review that PRISM has been calling on the government to undertake, which has received the support of 55 MPs. 

Temple says a key issue the SMF has been asked to explore is whether legislation has kept up with the way that people choose to work and the way that the end hirers wish to engage them. “This strategic review is needed because tax and employment legislation still only officially recognises two ways of describing engagement (employee or self-employed), and these are obviously rooted in the past,” Temple says.

One area in particular needs looking at, he says. “Our firm belief is that a fresh look at properly thought-out employment categories will create the level playing field that HMRC wants, while giving people the opportunity to operate in the new and exciting ways hundreds of thousands of people now chose to be engaged,” he explains.

According to Temple, contractors fare particularly badly within the current legislative and tax framework, falling between the two stools of employee and the self-employed, and not receiving the benefits of either: neither the pensions and other benefits of employed workers nor the tax relief of the self-employed. “This means those workers are never catered for and end up losing out,” says Temple. “Contractors are, in fact, a new and different type of worker, entirely deserving of their own category, and recognised as a third mode of employment.”

“Employment legislation needs to be designed with more of a customer focus, and the customer in this case is the contractor, just as it is in our business,” agrees Ian Black, managing director of umbrella firm and contractor service provider The Sterling Group. 

Julia Kermode, CEO of FCSA, a trade association for umbrella employers and accountancy providers, welcomes the review: “My gut feeling is positive. It certainly cannot do any harm. The government doesn’t understand how the flexible workforce operates. 

They would rather everyone was employed PAYE [pay as you earn] because that is straightforward, and it doesn’t know how to legislate for people that don’t fit that model.”

Kermode agrees that the UK workplace has changed significantly in recent years, and that this continues apace. “The number of self-employed workers in the UK currently standing at 4.6m is set to continue to grow as more professionals seek gigs instead of permanent jobs, and the sharing and economy and freelance market continues to expand,” she says.

However, that said, she argues that the view there is a third neat category of workers called ‘contractors’ is flawed. “It is an oversimplification,” she says, “particularly considering the many and varied ways of working that people choose that do not fit into these three categories.” 

“Employment status is transient,” Kermode continues. “It can change part way through an assignment as working practices evolve, and someone can have several different tax statuses in a given tax year depending on the specific circumstances.” She says a good example of the transient nature of employment status and its complexity is the ongoing Uber employment tribunal, where self-employed driver ‘partners’ are arguing they should be classified as workers and receive the accompanying benefits. 

Kermode points to the position taken by the Office of Tax Simplification. In 2015, the OTS published a report, which recognised “a ‘third way’ would be a simplification for those unclear on their current status” but concluded that this potential gain “would be likely to be outweighed by additional rules and regulations that would be needed to monitor compliance”.

Leon Deakin, senior associate in the employment team at law firm Irwin Mitchell, says the law has some serious catching up do. “There are a raft of people who want to work the way they want, who want to be free to do a few hours’ work when they want remotely from home. They understand they don’t get all the benefits of employed workers.”

“Do they [the government] recognise there are individuals in the workforce that work in a flexible way, and choose not to work according to the blueprint of a full-time salaried employee?” adds Matthew Huddleston, managing director of umbrella firm, FPS Group.

Deakin agrees that more clarity around a worker’s employment status would be a good thing. “Have we got the right categories of employment status for individuals? Probably not,” he says. One of the most common questions asked of him by contractors, Deakin says, is whether he can give them assurances over their status as contractors, and that their relationship with an employer could not be construed by HMRC as employer-employee. Given the current lack of clarity, “my answer is ‘probably’ or ‘probably not’ rather than ‘definitely’ or ‘definitely not’ ”, he says.

Employment status is just one of the areas that the SMF is tasked to look at. But it is symptomatic of a current legal and tax framework that is widely regarded by those advising on and working in the sector as overly complex, piecemeal and not in tune with the modern day needs of either workers or engagers. Despite widespread agreement of the need for change, many question whether, whatever recommendations the review comes up with, change on the scale required will be forthcoming. 

“It is only natural for there to be resistance when a call to go ‘back to basics’ means potentially undoing decades of legislation and policy decisions,” says Damian Broughton, executive chairman of accountancy services provider Danbro. 

John Chaplin, executive director people advisory services at professional services firm EY, questions whether the sort of radical changes needed to modernise the UK’s tax system into one “which balances the needs of the UK’s flexible workforce with the right amount of tax being paid” will materialise.

“Being blunt, it is just too big an issue,” he says, explaining that the complexity and interconnectedness of the various strands of legislation means that a change in one area has inevitable consequences in others. “I would like to think it would [happen], but I am a pessimist [in this regard]. I don’t think that it will get beyond the ‘nice to have’ stage.” 

If the pessimist in Chaplin is correct, those hoping for radical change in response to the SMF review when it is published next year are likely to be disappointed.   

The OTS response can be viewed here at http://bit.ly/2cAZ1oF

The SMF is keen to receive evidence and views from the sector. As part of this, PRISM plans to form a working group. Email crawford@prism.contractors.

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