Employment status for tax purposes and employment rights won’t be aligned, Government confirms
The Government has published its response to an earlier consultation on employment status and employment status for tax purposes and has released new guidance on determining employment status, and the rights and protections that come with it.
The response concludes that there is no consensus on what action should be taken, and that the Government has decided now is not the right time to bring forward proposals for alignment between employment status for tax purposes and employment law purposes.
The Taylor Review, commissioned by the Government in 2017 considered the implications of alternative models of working, such as those typically seen in the gig economy, as well as the implications on employer freedoms and obligations. The review made various recommendations to clarify employment status, including a recommendation that employment status for tax purposes and employment status for employment rights should be aligned.
In February 2018, the Government published the Good Work Plan in response to the Taylor Review which accepted a lack of clarity and certainty surrounding the tests for employment status. A consultation process followed which sought views on a number of proposals, including the proposal to align employment status for tax purposes and employment law purposes.
Following consideration of the responses received to the consultation, the Government has accepted that the non-alignment of the status frameworks for tax and employment rights can cause uncertainty, meaning that an individual can hold the status of self-employed for tax, but not for employment rights.
However, noting the lack of consensus around alignment, the ongoing economic recovery from the pandemic, and the wider economic context, the Government has decided that now is not the right time to bring forward proposals for alignment between the two frameworks.
This means that the current frameworks will continue for the foreseeable future. As a result, businesses who engage self-employed contractors should continue to consider the employment status for both tax purposes and employment rights of any contractors they engage.
Most employers are unlikely to treat an individual deemed an employee for employment rights as self-employed for tax purposes. However, this remains a troublesome area in the context of limited company contractors, where it is technically possible for a contractor to be treated as employed for tax purposes, but not be granted employment rights such as holiday pay and pension contributions. Given the overlap of the relevant tests within each framework, however, business should tread carefully when making such determinations.
For further information or assistance in relation to employment status, please contact our Employment Group on 0118 977 4045 or firstname.lastname@example.org.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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