A 'Good' Work Plan?

Government publish ‘The Good Work Plan’ following recommendations made in consultations concerning Matthew Taylor’s Report on Modern Working Practices.

The Good Work Plan was published by the Government in December 2018 following consultations on ‘Increasing Transparency in the Labour Market’, ‘Agency Worker Recommendations,’ and Enforcement of Employment Rights recommendations’. There is a fourth consultation on Employment Status for which the responses are yet to be published. Despite this, ‘The Good Work Plan’ does touch upon issues concerning employment status, previously highlighted by Matthew Taylor in his initial report published in July 2017.

In the initial report, Matthew Taylor did point out an ‘issue’ regarding the key employment status tests as follows;

“…an individual can nearly have every aspect of their work controlled by a business (from rates of pay to disciplinary action) and still be considered to be self-employed if a right for the individual to send a substitute to work in their place exists.”

Matthew Taylor suggested that the tests adopted to determine employment status should focus more on control and less on the right to provide a substitute, which in practice isn’t utilised particularly often.

Whilst Matthew Taylor’s comments do hold some truth, in reality an individual controlled to the above extent is highly unlikely to have a genuine right to provide a substitute. Although it is the right to provide a substitute that is important (as set out in HMRC’s own Employment Status Manual ESM0530) the right does have to be a genuine one and during an IR35 enquiry, HMRC will take steps to satisfy themselves that such a right is genuine, usually by checking with the end client directly. In Qdos’ experience of defending IR35 enquiries, control often becomes the key test where a right of substitution has not been exercised.

The report states that Employment Status is at the heart of all of the issues highlighted by the Matthew Taylor report and subsequent consultations over working in the modern economy;

“In the UK it is an individuals’ employment status that determines which statutory employment rights apply and how much tax is required to be paid. The rise of new business models and employment practices have caused increasing numbers of disagreements around the employment status of individuals. This has raised concerns that some… individuals and businesses may not be paying the right taxes.”

One of the key issues raised with employment is the fact that the tests are not aligned for determining employment rights and for tax purposes, and that an individual could be employed for the purposes of employment rights but be self-employed for tax purposes. This causes lots of confusion and is by the Government as an issue to be resolved;

“Matthew Taylor recommended that renewed effort should be made to align the employment status frameworks for the purposes of employment rights and tax to ensure that the differences between the two systems are reduced to an absolute minimum. The Government agrees that this is the right ambition and will bring forward detailed proposals on how the frameworks could be aligned.”

In addition to the above, the Government will look to provide greater clarity on employment status, following a recommendation that the ‘minimalistic approach’ should be replaced with a much clearer outline of the key employment status tests. This is certainly something which would be welcomed, although HMRC have not always succeeded in providing greater clarity over status issues but have instead achieved the opposite effect.

Another interesting point covered in the Good Work Plan is that the Government is looking to develop an online tool for employment status, which seems rather odd given that HMRC have spent untold resources on the controversial Check Employment Status for Tax tool (CEST), developed due to IR35 reform implemented in the public sector in April 2017 to help end clients ascertain the employment status of its off-payroll workers. Some may argue that this is not a ‘good plan’ and that the creation of another tool could create further confusion.

The CEST tool is apparently going to be further developed prior to introducing reform into the private sector from April 2020; a better option would be to further develop this for employment status too, particularly if the rules are going to be aligned for employment rights and for tax purposes.

Whether or not the Government’s plan is a ‘good one’ remains to be seen and let’s face it, the Government certainly have a lot on their plate. It is highly unlikely that any significant changes will be made in the near future and this will likely be a long-term project for the Government, and with Brexit still hanging over our heads, the Government may wish to avoid making any change which might affect the UK economy.