The Low Incomes Tax Reform Group (LITRG) has urged the Taylor Review of employment practices to recommend a comprehensive reassessment of the relationship between taxation and growth in non-standard work.
The review – which is being chaired by RSA chief executive Matthew Taylor – is focusing on employment law and practice and not taxation. Accordingly, LITRG has expressed concerns that the government could struggle to comprehend the changing nature of work or even make substantial changes to employment practices on the back of the review, without first analysing the intertwined relationship between employment law and tax.
For example, statutory payments such as sick pay or maternity pay are often thought of as employment law ‘rights’ but are actually dependent on whether there is a ‘secondary contributor’ (that is, someone that pays employers’ National Insurance). In cases where a worker is paid and taxed as self-employed, as those who work in the gig economy often are (whether or not they are a ‘worker’ for employment law purposes), there will not be a secondary contributor – and therefore no sick pay for them.
Anne Fairpo, Chair of LITRG, said: “The Taylor Review should not be seen as a comprehensive review of employment practices, because its terms of reference do not include tax. In our view you cannot understand one without the other. We think that a comprehensive review of tax and related issues and non-standard work should be carried out as a matter of urgency and hope that such a recommendation is made by Matthew Taylor and his panel.
“Exploitation of workers often manifests itself in problems with their tax and National Insurance contributions (NICs) such as employers not paying over withheld amounts of Pay As You Earn (PAYE) to HMRC. Even where there is no legal wrongdoing as such, minimising tax or trying to avoid HMRC administration is often a factor in terms of employers offering non-standard forms of work, for example, zero-hours contracts or temporary positions over full-time, permanent, direct employment.
“Not only can this type of work make workers’ lives insecure and unfulfilling but there is a huge knock-on effect on public finances, with much of the welfare system funded from general taxation – surely a longer term consideration when thinking about a worker’s security.”
LITRG is also concerned about a lack of synergy in that there are just ‘employed’ and ‘self-employed’ categories in taxation but three categories in employment law: ‘self-employed’, ‘worker’ and ‘employed’. It says the complexity and inconsistency of these status tests are a huge cause for concern when thinking about low income workers and one of the reasons confused workers miss out on their rights.