Too radical? Let’s dig a bit deeper…
The history of IR35, which originated as a Revenue press release in 1999 before becoming law in 2000, is a case in point. The Inland Revenue argued that contractors were using the fiction of a corporate structure to avail themselves of more generous tax allowable expenses and paying themselves by way of dividends, thus avoiding national insurance contributions.
In reality, the Revenue argued, they were employees.
Over the last 20-years despite numerous reviews, amendments and additions to the regime (most recently aiming at personal service companies in the public sector), the provisions remain in place. Private sector off-payroll workers will likely soon come into the scope of the anti-avoidance measures too.
Whilst HMRC has a point about certain aspects of the existing provisions, we have a couple of concerns:
- – What if, in this drive towards a centralised one-size-fits-all employment status, the IR35-dragnet completely misses the long-term trajectory of the future shape of the work environment?
- – What if someone who provides services to a range of businesses ends up in a really messy tax situation? They will be forced to become an employee of each of them as the current PAYE system cannot cope with multiple employments. The result – individuals will face tax demands as part of year end self-assessment as they will have had the wrong tax codes.
- – What if the demand to classify as many as possible as employees actually exposes the inadequacy of the current taxation system as being barely fit for purpose for the new order?
In short, IR35 is a mess and inconsistently applied. The proposed changes will only make it worse and likely force everyone to become “employees” when in reality they aren’t, thereby causing increased needless bureaucracy.
The future of work is greater flexibility, independence and training
The robots are coming! We stand on the edge of a technological revolution which is proceeding at an exponential pace and will transform our society and our way of life.
What is different now is not the digitisation of processing, but its speed together with the impact of connectivity. This will transform our access to knowledge and how we consume it.
The pessimistic view is that this will sweep away both low-skilled and more highly skilled jobs and the traditional approach of education and reskilling will not work.
However, there is a more optimistic view as well. In their book, The Second Machine Age, Erik Brynjolfsson and Andrew McAfee emphasise that despite the challenge of the robots, the demand for human labour will not disappear. What is more, although few jobs will remain untouched, the best response is education, innovation and entrepreneurship. They have more confidence in the innovative elements of the human person and human adaptability and flexibility and it is this that will enable humanity to seize the opportunities.
The implications are deeply significant. If the optimism of Brynjolfsson and McAfee is to be the prevailing argument then there will be a pattern of:
Work – Training – Work – Retraining – Work…
This will be underpinned by adaptability and flexibility which will be the watchwords of a successful career.
If the trend towards imposing employment status on the many continues, the current education and tax systems will prove to be barriers and not enablers in this innovative future.
Life-long education and technical education have been mantras for decades with little real action. If the pattern of work is going to be more flexible, adaptive and innovative then both technical education and training need to match these characteristics.
A few of thoughts:
- – Perhaps there should be a ‘technical skills (here think STEM) and financial education certificate’ taught in all schools; dare one suggest, instead of the useless Citizenship Studies?
- – Perhaps there should be move back to valuing apprenticeships outside the traditional ones of engineering etc – areas such as the law, accountancy (like articled clerks) – instead of pushing the route of university thereby bringing the benefit of less debt for students and career focused training whilst being paid.
- – What about reducing college degrees to 2-years and allowing the ‘third year’ to be credited to a personal training account to be accessed and used over the course of a person’s working career (an education credit, if you will)?
- – The State doesn’t have to pay upfront for full time education and perhaps employers should get some form of tax break.
Transforming employment and taxation
At the heart of this debate is the recognition – and it is hard to see it as otherwise – that the current system of employment and taxation in the UK is not fit for purpose.
Why continue to insist on employment status for all when work will become more portfolio based, more flexible and more adaptable? The very fact of permanent employment status simply reinforces the idea that we will remain in one job for the long-term – an increasingly unlikely scenario.
The inconsistency of the national insurance system also reinforces this problem. This was brought in to stark focus during the 2020 Covid-19 pandemic some businesses were able to access government assistance and others were not. National insurance is now, effectively, no more than general taxation to which certain social security rights are attached. The employers’ portion of national insurance, currently 13.8%, is seen by many as an outright tax on jobs.
What might this new world look like? Some thoughts:
- – End the whole idea of employment status and make every individual worker an independent contractor.
- – Abolish national insurance as a separate tax (and merge into income tax and/or corporation tax).
- – Set up a portable tax and benefits account for each individual; irrespective of whether a person works for a particular company for one week or ten years, this account can accrue state pension entitlement, a basket of protections against discrimination or unfair dismissal, the education credit mentioned earlier and the ability to manage self-assessment, expense claims and so on.
- – Develop a system which can accommodate “negative income tax” so that over the course of a working life any necessary benefits could be applied through the same mechanism.
The outcome would be consistency, a more efficient management of the tax and benefits system and an approach to work and ‘employment’ status more in line with the direction of travel in the new, more digital, workplace. Increased home-working merely increases the need for changes.
There would also be a transformational impact on how an individual would view their own ‘employment’ career; accepting responsibility, recognising the need for adaptability and flexibility and encouraging entrepreneurship and innovation.
Will Rishi Sunak grasp this opportunity to change and equip our workforce and nation for the challenges ahead? Or is this too radical and will it yet again be kicked into the long grass?
Dr Richard Turnbull is the Director of the Centre for Enterprise, Markets & Ethics (CEME). For more information about Richard please click here.