Government Response

The Government responded to this petition on Monday 22nd July 2019

The off-payroll working rules do not apply to the self-employed. They ensure that individuals who work like employees but through their own company pay broadly the same taxes as the directly employed.

The off-payroll working rules have been in place for nearly 20 years. They are designed to ensure that individuals working like employees, but through their own limited company, pay broadly the same tax and National Insurance contributions (NICs) as those who are employed directly. The rules support a fair tax system by ensuring that two individuals working in a similar way for the same employer pay broadly the same tax and NICs, even if one of them structures their work through a company.

The rules apply only to individuals who are working like employees through their own company and do not apply to the self-employed.

Non-compliance with these rules is widespread. HMRC estimate that only 10% of those who should be applying the rules do so. People who are not complying with these rules are not paying their fair share of employment taxes resulting in projected costs to the Exchequer of £1.3 billion a year by 2023/24. This money would otherwise go into funding hospitals, schools and other public services.

To address this, in April 2017 the Government reformed the way in which the rules operate in the public sector. Public sector bodies are now responsible for determining whether the rules apply to individuals they contract with through limited companies, and for ensuring that they and the individuals who work for them pay the right tax. HMRC analysis of income tax and NICs receipts shows this has been successful in improving compliance, with an estimated additional £550 million being raised over the first 12 months. Independent research has also shown that this change has so far been achieved without disrupting public services or reducing market flexibility.

Though the rules are now operating effectively in the public sector, non-compliance is growing elsewhere. That is why at Autumn Budget 2018 the Government announced that it would extend the reform to all medium and large organisations from April 2020.

The Government has consulted extensively on the proposed extension of the reform to other sectors, and on 11 July published its response to the most recent consultation: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/816059/Off-payroll_working_rules_from_Apri__2020_-_summary_of_responses.pdf.

Having listened to stakeholders, the Government decided not to apply the reform to the smallest 1.5 million organisations. It will take effect from April 2020 to give organisations time to prepare. The Government has also decided to bring forward legislation requiring organisations to maintain a client-led status disagreement process to allow individuals and fee-payers to challenge the client’s status determinations directly and in real time.

The Government is currently seeking feedback from experts and stakeholders on the draft legislation for inclusion in Finance Bill 2019.

Falling within the off-payroll working tax rules does not change an individual’s status for employment rights as there are currently separate frameworks for tax and for employment rights, with no direct link between them. However, as set out in the Good Work Plan published in December 2018, the Government agrees that reducing the differences between the tax and rights frameworks for employment status to a minimum is important. In the meantime, it is right that the Government takes action to improve compliance with existing tax rules. Those who wish to challenge their employment status for rights can take their case to an employment tribunal, regardless of their tax status.

The Government values the contribution of flexible workers to the UK economy. However, it is also under an obligation to ensure fairness between individuals who work in a similar way.

HM Treasury.