Treasury set to overhaul employment status

The first definitive information on how the government will proceed on the thorny issue of employment status has emerged.

There will be a new cross government working group on employment status; an employment status portal, a new helpline and fresh guidance for end-users who engage the self-employed.

There will be improvements to the ESI by April 2016, potentially so HMRC can “stand by the results” after it is taken, so the worker faces “little risk” of challenge, as CUK was told.

But there will be no further exploration of the Freelancer Limited Company – the structure proposed by IPSE to offer ‘a third way’ - neither employed nor self-employed.

These are the headline findings from the government’s response to the OTS employment status review, which ran in March this year and recommended 28 courses of action.

At the 2015 Autumn Statement yesterday, the government said it accepted the majority  of the recommendations but did not disclose which ones. Now, a letter from Treasury minister David Gauke has clarified.

“The government has agreed to 17 of your recommendations and will further consider another six,” he told the OTS in the  letter, which details the government’ response to each recommendation.

In total, four recommendations have been rejected, including one which accountant Kingston Smith said would have given contractors more certainty – a de minimis limit on payments.

Positively though, providing greater certainty to workers seems to be the impetus behind the government’s decision to set up the Cross Government Working Group on ES.

According to Mr Gauke, the working group will consider the benefits of - and barriers to - an agreed set of employment status principles and a statutory employment test.

Asked by ContractorUK whether the minister’s letter has implications for personal service companies and the rules on IR35 and expenses, a status advisory said it did give some clues.

There is no mention of Supervision, Direction or Control (SDC), the advisory pointed out, nor is there any evidence of the leaked proposal to cap contracting at “month one or two”. 

Ultimately though, it’s still a case of ‘wait and see’, added Kate Cottrell, a former tax inspector and the co-founder of IR35 advisory Bauer & Cottrell.  

“Draft legislation [is] due out on 9^th December...[only then can PSCs] see if the SDC proposal has been dropped or if the decision has been made to simply stop T&S for umbrella users and for those in PSCs inside IR35.” 

She also told ContractorUK: “My message to contractors, as always, is to consider their positions especially if they are reliant on relief for T&S and their contracts go past April 2016. Now is also the time to consider their IR35 positions…to establish what potential financial risks they are facing in the future.”