Following the welcome announcement on 12 May of a review into how the government can best support a thriving future UK labour market, ICAEW has written (published as ICAEW REP 42/22) to the review chair, Matt Warman MP.
In the letter, ICAEW’s Tax Faculty recommends that the review:
- Considers how income tax and NIC might be changed:
to reduce the disincentive to classify workers as employees, and
to make the expenses regime fit in with new ways of working
- simplifies the definition of employment status, and
- covers all four nations of the UK.
The terms of reference require the review to “Build on existing government commitments (including those made in response to the Matthew Taylor Review) to assess the key questions on the future of work as the UK looks to build back better from the pandemic” and “make recommendations to guide long-term, strategic policy making on the labour market.”, among other things.
Although rates of tax are out of scope for this review, ICAEW would expect the structure of the tax system to be considered given its critical impact on the labour market. In particular, the cost of employer’s NIC is what discourages hirers to classify workers as employed. In addition, the move to remote working means that the expenses regime for those working from home needs updating.
Employment status is also very difficult to determine. This has not been helped by recent Court of Appeal cases, which have highlighted its complexity but not provided clarity. There are also multiple employment statuses in employment law – including separate ones for Northern Ireland – but only two for tax purposes.
The government responded in February 2018 to the Taylor review of modern working practices published in July 2017, to which ICAEW contributed, and in December 2018 published its Good Work Plan.
Since then, wider reforms have been made to employment law including to workers’ rights. However, ICAEW is not aware that detailed consideration has been given to reforming either the income tax and NIC rules or to the definition of employment status. Reform is now needed more than ever.
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