The Taylor Review of Modern Working Practices (the “Review”) is underpinned by three aims: to tackle exploitation, to increase clarity on status and rights and to bring the law on employment status up to date with modern working practices.
Commenting on the proposals in the Review pertaining to employment law, Donna Sharp, Senior Manager – Employment Legal Services, at KPMG UK, said:
“Government, businesses and workers all need some time to reflect and digest the findings of the Taylor report which, along with some interesting research, contains a large number of recommendations and suggested next steps. Some of these are more aspirational in nature, but there are also more substantive suggestions.
“While the magnitude of the report – running to some 116 pages – perhaps opens the door to criticism on the basis that some of the aspirations could be considered more words and less substance, some of the more robust suggestions, if successfully implemented, could make a real difference , giving low paid workers some rights and stability. The difficulty is - as the Review acknowledges - that many of the suggestions will need to go into consultation and discussion before finding their way into legislation. The real test therefore is whether the Government will act quickly or whether the Review’s recommendations will get stuck in a backlog of bureaucracy and approvals.
“Nevertheless, with the pressures of Brexit front and centre, and expected to remain so for some time, the reality is that enacting changes to employment law is unlikely to be the Government’s immediate priority. From our perspective, this would be a real shame as some of the suggestions could make a real and positive difference in bringing some clarity and protection to workers that need it. Not only this, the same clarity could also give confidence to the economy both pre and post-Brexit.
“It is a difficult task – the Government needs to find a way to make fundamental and wide-reaching changes without too much burden and cost to businesses. Nevertheless, by giving enhanced rights to individuals, there is bound to be a cost of some sort to employers. This will need to be monitored to ensure it does not detract from the benefits clarity may bring. However, we may find that it is ultimately consumers that end up paying slightly more for services.”
There is a clear acknowledgment in the Review that there is a relationship between employment law and tax law which needs to be bridged and will also require wholesale amendments to both existing tax and employment legislation.
With this in mind, Colin Ben-Nathan, Tax Partner at KPMG UK, added:
“The key takeaway from the Review from a tax perspective is the acknowledgement that there is a real need for consistency in the taxation of work across the board in particular with regards to levelling out tax for the self-employed and employed. A key recommendation in the review is that for tax purposes, being employed means being either an employee or a “dependent contractor”.
“The Chancellor took tentative steps in this direction in the Spring Budget earlier this year by looking to align the main rate of self-employed National Insurance with the Employee NIC rate. Despite the fact that this proposal was ultimately withdrawn when found to be in conflict with the Conservatives 2015 election manifesto, from our perspective the Chancellor should take another look at the proposal in the light of the Review.
“Employer’s NIC is a key distortion in the taxation of work as it applies to employees but not the self-employed. Many would say this is a “tax on jobs” – unhelpful at a time of increasing automation and offshoring - and yet it raises c£65bn a year so it also can’t just be abolished. Extending it to the self-employed is not the answer as it then becomes a tax on the self-employed as well, and could also act as a further incentive to choose automation over human labour. But de-coupling Employer’s NIC from jobs and levying it instead on business costs as a whole, for example a levy based on day-to-day business costs, which could be labelled as 'Business Social Contributions,’ might be worth considering. With the rise of automation, this could also future-proof the Exchequer from a potentially significant drop in tax revenue in the future.
“Another of the recommendations contained in the Review is that the Government should consider accrediting a range of platforms designed to support the move towards more cashless transactions thereby supporting individuals to pay the right tax. This also chimes with the Government’s aim for Making Tax Digital and the use of third party information so it is perhaps not difficult to imagine a future where cashless platforms report data directly to taxpayer’s accounting software and direct to HMRC for pre-population of Digital Tax Accounts.
“In our view, there needs to be wide consultation and discussion on the way forward for tax in the world of work – but with a view not just to the way things look today, but how they may look in 5 or 10 years’ time.”
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff. The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 152 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.