Gig worker proposal ‘alarmingly similar to IR35 reforms’

The contractor sector has raised the alarm after an adviser to the Treasury took a leaf out of the IR35 reform book when outlining how ‘gig’ economy workers might be taxed in future.

In fact, the Office of Tax Simplification’s top suggestion that engagers deduct PAYE income tax direct from workers’ earnings is being deemed “alarmingly similar” to the IR35 reforms.

Using even similar words to those which introduced the 2017 reforms, the OTS said engagers would, in effect, be “taking responsibility for fulfilling the tax obligations of their workers.”

'Optional'

In a 20-page paper, the OTS clarified that a worker’s status would be unchanged under the ‘PAYE-equivalent’ system, which would be more tax-efficient but “optional”, apparently.

Yet “optional” is how HMRC once described CEST.

“Suggesting that gig economy workers should be paid via a system similar to PAYE and making their employers responsible for this…[is] alarmingly similar to IR35 reforms”, said the Freelancer & Contractor Services Association.

'Unintended consequences'

The FCSA is not the only freelance trade body to be issuing a warning as a direct result of the OTS’s recommendation, published on Friday but not seeking responses from any affected parties.

“This proposal to make the taxation of certain self-employed individuals more closely mirror that of employees will have a number of untended consequences,” cautioned contractor group IPSE.

“The problem is the two are entirely separate and any attempt to treat them in the same or similar way for tax is likely to create significant problems, particularly for self-employed individuals.”

The only problems that the OTS foresees is initially increased cost for HMRC (it may have to introduce a new tax code); difficulty assessing eligibility, and legislative change.  

'In theory'

These are pitted in the report against two big, attractive upsides -- for government.

“For HMRC, in theory at least it would be easier to administer the tax affairs of workers who decided to use such a PAYE type scheme, as opposed to leaving it to those managing their own tax affairs by paying their liability at the end of the tax year.”

In addition, the OTS paper adds: “Such an arrangement could also align with the government’s response to the Taylor Review of Modern Working Practices, where, for example, the government said that it would consult on the introduction of a mandatory payslip for platform workers.”

'Out of step'

The scheme being drawn up by the OTS as voluntary is reassuring to Julia Kermode, FCSA’s chief executive, who responded to the paper on LinkedIn.

“The proposal…is [presented as a] positive because it saves the workers the hassle of sorting out their own financial affairs. Not sure I agree”.

She also wrote online: “An element of choice….is certainly positive, although such a choice is out of step with other tax rules, and so unlikely to happen in practice.”

'Highly likely'

In response, and in light of the FCSA’s stance that the proposal is worryingly the same as the IR35 reforms, an independent consultant said: “Agree on both points: alarming, and unlikely.”

However, if the OTS recommendations strike a chord with officials, they could quickly become their ‘lead option,’ much the same way that private sector IR35 reform is still only proposed as an option in a consultation but already seen as inevitable.

“Most things that Treasury suggest are usually alarming and these days highly likely,” reflected Steve Wortley, commercial director at contractor accountants PayStream.

'Self-employment'

If the recommendations are accepted, the Association of Independent Professionals and the Self-Employed sounds as if it will oppose them, for hurting both freelancers and freelancers’ case law.

“The self-employed could be left out of pocket because it isn’t clear how legitimate business expenses will be accounted for under such a system”, said IPSE’s Andy Chamberlain.

“The courts have also said that autonomy and control are defining features of self-employment, so this proposal could add further confusion to the already vexed issue of employment status.”