Income Tax, NICs and workers
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
1 September 2020
ICAS calls for a rebalancing of Income Tax, NICs and employment law throughout the labour market.
Align and simplify
The need for the UK Government to introduce emergency assistance schemes to help the employed and self-employed shone a spotlight on myriad distortions within the income tax system, and on how people can declare their incomes in different ways to suit their own circumstances and personal behavioural responses to taxation. In our paper, The Future of Taxation in the UK, we make the following recommendations:
- Better alignment of taxation and employment law
- The government should continue to implement commitments made in the 2018 Good Work Plan
- The treatment of employed and self-employed workers should be more closely aligned by introducing changes to self-employed NIC rates and to expenses rules
- Additional resources should be made available for tackling modern slavery and the exploitation of gig economy workers
Sticking plasters
Attempts to tackle problems in this area – recent examples include changes to the taxation of dividends, some restriction of reliefs on incorporation, IR 35 and the off-payroll working rules – have increased complexity and produced some unintended consequences. It is clear that the fundamental issues of taxpayer behaviour, employment ethics and falling NIC revenues urgently need to be addressed.
Where to begin?
The Government’s 2018 Good Work Plan stated that it would bring forward detailed proposals on how employment status frameworks for employment rights and tax could be aligned and committed the Government to improving the clarity of the employment status tests. Clear boundaries should exist between those who are genuinely self-employed entrepreneurs - and those who are not – and who are therefore to all intents and purposes, employees.
Measures to improve alignment between the taxation of employed and self-employed workers should be conceived simultaneously.
Despite the retention of Class 2 NICs, self-employed workers still continue to pay significantly lower rates of NICs than employees and enjoy more generous reliefs for expenses. Addressing these distortions in the short term could be achieved without significantly increasing complexity.
Secondary NICs, employer behaviour and the impact on gig workers and modern slavery
The cost of employer NICs is key to avoidance behaviours, exploitative practices in the gig economy and to illegal modern slavery. ICAS considers that the benefits to be reaped from carrying out its recommendations will consist of:
- Providing greater clarity on employment status for employers and workers
- Reducing the role of tax in pushing individuals towards self-employment for the wrong reasons
- Improving alignment of the taxation of the self-employed and employees, making clear the link between paying tax and NICs into the system and receiving state support
- Reducing exploitation of vulnerable workers
Contribute to the debate
ICAS members are invited to contribute to this debate – please give your views on the recommendations in ‘Future of Taxation in the UK’ by emailing tax@icas.com or login to the CA Connect forum, an area exclusive to members, where thoughts may be shared and discussed with fellow members. There are also opportunities to join ICAS tax committees to discuss these recommendations and many other tax policy and practical matters – email tax@icas.com to find out more about being a committee member.