Over the last few years there has been a sustained attack by some of the Press, the Unions and HMRC on those working in the so called Gig economy (which of course includes agency workers). These workers have been positioned as either unfairly exploiting the tax system or being unfairly exploited by rogue engagers. Interestingly the Government’s solution to these problems has been to increase the tax burden on the Gig worker rather than deliver any rights to the worker.
2014 - Employment Intermediaries Legislation
In 2014 the Government introduced the Employment Intermediaries legislation which challenged the tax status of the self-employed (especially CIS workers) working through agencies. In a nutshell the Government decided that, for tax purposes, you couldn't be genuinely self-employed if you were supervised, directed or controlled. To help enforcement, the tax risk was passed to agencies which resulted in many agencies refusing to work with CIS workers. The result was that many workers were switched to umbrella or agency PAYE. Although the workers take home pay was reduced they did (in the umbrella at least) gain some employment rights. And (for a year at least) the umbrella companies helped the workers to claim back their travelling expenses.
2015 - Travel & Subsistence Legislation
In 2015 the Government decided that it wasn't fair that agency workers could get tax relief on their travelling expenses. Agency workers travelling to sites were compared to workers travelling to their permanent jobs. This was seen as exploiting the tax system. Once again the Government decided to deny tax relief to anyone who was working through an agency or umbrella who was supervised, directed or controlled. This affected the low paid workers most of all since they were most likely to be supervised. Those travelling large distances to fulfil temporary contracts were particularly hard hit. It should be noted that permanent employees (including MPs) are still able to get tax relief on travel to temporary work places.
2017 - Public Sector Changes
In 2017 the Government turned its attention to people working in the public sector through PSCs. Using high profile examples of people working in the BBC, who were using PSCs and other schemes to save tax, the Government announced it would get its own house in order and introduced 'off payroll' rules to ensure that anyone under supervision, direction or control be taxed like an employee. Tax risk was moved to the Public Sector and agencies to help with enforcement.
The Government conveniently ignored the fact that the tax advantages for PSCs were introduced originally to acknowledge the fact that businesses have costs (e.g. professional fees, insurance, and equipment) that employees do not; these workers do not have any equivalent employment rights and help to drive the economy. HMRC has told Government that the new rules have been a success (since more tax is collected) and that there has been no adverse effect on the supply chain. The Government has ignored feedback from the accountancy profession, agencies, and trade bodies such as APSCO, PRISM and FCSA that the rules have caused chaos in the Gig economy:
- Gig workers don't understand the new rules since they are not fair
- The public sector bodies often didn't understand the rules or didn’t want to take a risk so there were many cases of a public sector body saying all workers are under SDC - the result being a reduction in take home pay for the worker
- Agencies have to negotiate new rates since costs have gone up
- Accountants struggle with understanding the deductions that have to made since they are not logical
- Payroll and accountancy software does not work with the new rules
So, what’s next?
Late last year the Government released a report (put together by the Work and Pensions and Business, Energy and Industrial Strategy Committees) and a draft bill to close the loopholes that allow companies to use bogus "self-employment" status as a route to cheap labour and tax avoidance. This has a familiar ring.
Frank Field, MP and Chair of the Work and Pensions Committee, said, "The two Committees are presenting the Prime Minister with an opportunity to fulfil the promise she made on the steps of Downing Street on her first day in office, with a draft Bill that would end the mass exploitation of ordinary, hard-working people in the gig economy. The bill would put good business on a level playing field, not being undercut by bad business. It is time to close the loopholes that allow irresponsible companies to underpay workers, avoid taxes and have a free ride on our welfare system."
The report added that new laws and tougher enforcement are needed to protect workers.
The question I asked myself when I read the report was; would this result in the lot of Gig economy workers being improved or would it be another case of reducing their take home pay?
We may soon find out as the Government is due to begin a consultation on whether to extend the off-payroll rules into the Private Sector. We will keep you updated as and when this progresses.