Enter Your E-mail

My grasp of modern history is no less shaky than that of any other era but I seem to recall that it was a previous conservative government that tried to get away with claiming “no tax rises” but kept nudging up NICs because it sensed that the general public failed to make the link so directly as with Income Tax. Or perhaps that was just the first time I noticed it.

Well, the appetite for yet more NIC seems unassuaged, with attacks on “salaried” members of Limited Liability Partnerships and a more general assault on anyone working through an agency, lurking in the Autumn Statement’s “consultations”.

It seems that HMRC is enjoying more of a free rein than it might previously have dared hope: a few years ago, and fresh from a drubbing or two at the tribunals, HMRC ventured to suggest that it might introduce legislation to treat people in the construction industry as employed – for tax purposes only – unless they met one of several criteria. Crucially, the bar was set far higher than previous and recent case law such as Castle Construction had required, and the government appeared not remotely concerned as to whether or not the re-classified individuals were in fact employees for employment law purposes. In other words, the c400 bricklayers in Castle Construction who were inarguably self-employed at tribunal would nevertheless be subject to PAYE tax and NICs, without the benefit of paid holiday, or any other employment rights. Now if that’s not artificial, I don’t know what is.

While the consultation document Onshore Employment Intermediaries: False Self-Employment appears at least partly to stake its claim on the argument that the alleged current shift to self-employment forces workers to give up employment rights, it does not try to change that problem but instead proposes that for tax purposes only, the right of substitution be no longer relevant, and control be all that matters. It goes on to say that workers should be able to claim their valuable rights under existing case law (see 7.3 onwards of the document) which seems  (politely) nonsensical: either existing case law is good enough, in which case why legislate, or it is not, in which case legislation is required for employment generally, not just its taxation. Perhaps it is not being unfair to suggest that fairness is considered less important than tax (or NI) yield.

Turning now to the attack on “salaried” partners in Limited Liability Partnerships (LLPs) there is at least consistency in that again, (and who can blame them?), HM Treasury appears concerned to ensure only that it procures more tax/NIC, by requiring certain partners to be subject to PAYE. It is not just “salaried” partners who are at risk, however: any member of an LLP could be re-categorised. While a partner need only satisfy one of three key tests – own income substantively determined by overall partnership profits, influence over the LLP as a whole, and the extent of capital risked in the business – in order to escape re-categorisation, it seems likely that members of larger LLPs will struggle:  it is common in larger partnerships for more ‘local’ profitability to determine entitlement, likewise (as the consultation acknowledges at page 13 of Partnerships: a Review of Two Aspects of the Tax Rules) only a handful of members may lay claim to significant influence over the LLP.  What particularly caught my eye was the TIIN’s suggestion that “overall, the impact on the economy should be small”, (if so, why bother?), while estimating a yield of almost £3.3billion by 2018/19, for all of the proposed changes.

To be clear, I am a huge fan of LITRG and its work to represent the low-paid who cannot afford representation. I disagree with nothing in LITRG’s work on False Self-Employment which seeks to protect the interests of those who are put at a disadvantage - even to protecting revenue. But I do object to imposing sweeping measures which will also affect individuals who are genuinely self-employed – particularly if they be afforded none of the normal protections which usually go hand in hand.  

No doubt more will come out of the consultation phase but it is to be hoped that these measures will be more precisely targeted than currently seems the case – particularly where an individual could end up being taxed as an employee but with no corresponding rights. It seems we should also take any claim that this government is a “low-tax government” with a hefty pinch of salt. (Or perhaps that should be any government...)