The Office of Tax Simplification (OTS) has published its report and recommendations following its review of Employment Status. The report describes clearly the current complexity of the system, highlighted by the different tests used to assess employment status for tax, employment law and pensions auto enrolment. A blog post from the OTS asks for views on the matter.

The report’s main observation is that there is a lack of certainty for businesses to rely upon when assessing employment status and engaging individuals. Currently there is no definition of self-employment in tax law. This leaves employers, individuals and HMRC to consider case law in order to establish an individual’s employment status, with the potential for significant tax and national insurance liabilities for employers who are found to have drawn the line in the wrong place.

In typical OTS style the report notes that changes to the current system would not be straightforward, but does include some initial recommendations to improve the current information. These include:

• Better employment status guidance to be made available;
• Help for individuals and small businesses on what action a business should take, and the documentation it should have, when engaging a self-employed individual;
• Setting up an HMRC employment status helpline for employers; and
• Improvements to the existing Employment Status Indicator tool.

Longer-term suggestions are also made including consideration of:

• A ‘safe harbour’ approach where an employer has relied upon HMRC’s advice and has been open about its arrangements;
• A possible ‘de minimis’ period of time or level of payment before employment status needs to be considered;
• A full study into aligning tax and NIC rates and contributory benefits;
• A statutory employment test; and
• A withholding tax for payments to certain types of off-payroll worker.

Following on from the report, at Budget 2015 the publication of the report was welcomed however a response to the recommendations will not be made until the next parliament.