What the new employment status guidelines mean for self-employed workers
- 10 Aug 2022
- Eva Petrova
The government has published new guidance on employment status to help businesses and individuals better understand the current system. It’s helpful, but it only considers status for employment rights, not tax and crucially, it doesn’t actually change anything – we still have the same, impenetrable status rules and the government isn’t going to do anything about it.
After four long years, the government finally responded to its own consultation on Employment Status late last month. The consultation followed the Matthew Taylor Review on Employment Practices in the Modern Economy.
Taylor made a series of positive recommendations - including clarifying employment status rules - in his review, which the government at the time accepted and committed to implementing. Four years of silence followed, and now the government has decided not to address employment status, arguing that now is not the right time to bring forward changes to one of the most important issues facing self-employed workers and those that wish to hire them.
Instead, it has published the new guidance. It covers the main criteria which will be familiar to anyone who is concerned with IR35 – personal service, control and mutuality of obligation. It also highlights supplementary considerations including:
- The ability to make a financial loss or a profit
- The negotiation of fees
- The use of their own money to buy business assets and equipment
While the guidance is somewhat helpful, it doesn’t address the underlining problems surrounding the rules. We will still be confused about whether there is a mutuality of obligation or not, and most importantly – it will do nothing whatsoever to help supply chains which are struggling with IR35. In fact, it quite specifically states that the guidance should not be used to determine tax status.
The issues with employment status rules
While some outside of self-employment may overlook employment status decisions, confusion around the rules has crippled the sector in recent years. Since the implementation of IR35 in the private sector, medium and large-sized hiring organisations have been put in charge of grappling with the opaque status rules. Those deliberations determine whether an engagement is inside or outside IR35.
The lack of clarity around employment status rules has resulted in risk-averse hirers incorrectly determining IR35 applies in thousands of cases. It has also resulted in four in five (80%) freelancers inside IR35 experiencing a dramatic fall in their quarterly earnings. Moreover, since the changes to IR35, a significant number have left self-employment altogether to avoid the new rules and employment status regulations.
How to solve the issue
A straightforward solution to this is erasing IR35 rules altogether. However, if the government is not yet prepared to make these changes, an alternative approach would be to introduce clearer criteria for determining status. This will ensure that confusing rules do not disadvantage contractors and that the test is more digestible and easier for hirers to apply.
The government is long overdue in solving employment status decisions. Self-employed workers can’t wait another four years and they need either Rishi Sunak or Liz Truss to commit to solving this issue as Prime Minister. If not, they will be harming one of the most innovative and dynamic parts of the UK economy - a sector that is essential to the growth of thousands of businesses across the country.
If you are interested in hearing more about the government’s response to the Taylor Review, then you should attend our upcoming webinar on Thursday. The webinar hosted by IPSE’s Director of Policy Andy Chamberlain as well as myself and our Senior Policy and Communications Advisor, Fred Hicks will cover what the new guidelines mean for self-employed workers.
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