Employment Status in the UK

The changing business models in the labour market is one of the biggest challenges facing the tax system, with significant Exchequer impacts and compliance challenges for HMRC. Problems will persist until the employment status system is reformed. To make evidenced decisions about reforms, fiscal and economic impacts must be known. Existing data is not sufficient to robustly estimate the size of employment status categories post-pandemic, or determine how individuals might be affected by reforms. New primary research is needed to gather evidence, update previous research findings, behavioural impacts of the current regime, and effects of working through intermediaries. Despite prior employment status research conducted in 2018, HMRC holds limited data on employment status post-pandemic, and senior decision-makers are increasingly interested in reform. Research is required to provide estimates of the current labour market and determine the extent to which individuals would be affected by reforms. This research would provide data on types of work individuals undertake against the current employment status criteria, the effects the current regime has on engagement choices by employers/engagers, and which types of engagers workers are involved with and by whom. Qualitative interviews will also help establish the wider impacts of options for reform, as the FST is keen for us to build individual-level data to create case studies of the worker population. Research is key to informing potential employment status reform and providing employment status data post-pandemic. It will ensure any policy development by HMRC/HMT are evidence-based and focussed on ministerial priorities. HMRC requires a quantitative survey of individuals to obtain representative demographic and tax-status data on the worker population, followed by 30 qualitative follow-up interviews with individuals and engager's behaviour and decision-making processes when it comes to employment status. This means we can provide estimates of the worker population, and compare the findings to previous research conducted by HMRC. Employment law recognises three distinct employment categories (employee, worker, self-employed), the tax system only has two: employed and self-employed. The rules determine whether individuals and their engagers pay tax and NICs on an employed or self-employed basis. The rules are open to interpretation and can be difficult for individuals and businesses to apply and for HMRC to enforce, leading to mis-categorisation and loss of tax and NICs for the Exchequer. We have made the case to seniors, FST and CX that the current system is not sustainable and needs reform due to these risks to the Exchequer.