A new compliance team which will address the "risks" associated with the changing nature of employment is to be established within HM Revenue and Customs (HMRC).
Financial secretary to the Treasury Jane Ellison confirmed the measure in a letter to Frank Field, the Labour MP who chairs the House of Commons Work and Pensions Select Committee. Field had written to HMRC requesting an investigation into employment practices at Hermes, the delivery company, following reports of "chronically low pay and poor working conditions at the company", according to a post on the MP's website.
In her letter to Field, Ellison said that the government was "committed to taking strong action where companies, to reduce their costs, force their staff down routes which deny them the employment rights and benefits they are entitled to".
"Employment status in the UK is determined by the reality of the working relationship and not simply by the terms of any contract," she said. "Individuals cannot be opted out of employment rights and protections simply by an engager calling them 'self employed'."
"Where companies are believed to have misclassified individuals as self-employed, HMRC establishes the facts of the case and will take steps to ensure that all the appropriate tax, [National Insurance contributions], interest and penalties are paid. These include, where necessary, taking individuals and companies to court to force payment," she said.
The new HMRC team will be called the 'Employment Status and Intermediaries Team', and will have as its focus "status and employment intermediary risks", according to Ellison. Having a dedicated team will enable the department "to better focus [its] resources and expertise to ensure these issues are effectively tackled", she said.
Self-employment is not currently defined by UK law. Different employment status tests are used for the purposes of tax, employment law and pensions auto-enrolment.
Earlier this month, the prime minister appointed Matthew Taylor of the RSA think tank to lead an independent review into modern employment practices. Taylor has been asked to consider the effectiveness of the regulatory framework surrounding employment in relation to new, more flexible ways of working; and whether the growth of the "gig economy" and other non-traditional forms of employment undermine policies such as the National Living Wage, automatic enrolment, parental leave, sickness and holiday pay.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that although the question of whether an individual is employed or self-employed is not new, "it is clear that HMRC will be challenging the position more frequently".
"This is relevant not only to low-paid individuals in the so-called 'gig economy', but also to those who work in other areas such as IT consultants or media professionals," she said.
"The government announced in March that it would be changing the rules for 'off payroll' workers in the public sector, and it is looking increasingly likely that this will be extended more widely. This could impose significant extra compliance burdens on those companies that regularly engage consultants, where the question of whether someone is truly self-employed is not always easy to answer," she said.
From April 2017, public sector employers will become responsible for ensuring that any 'off-payroll' workers including those engaged through personal services companies (PSCs) pay the correct tax. Recruiters will be under the same obligation where the individual is engaged through an agency. Non-compliance with the rules requiring off-payroll workers in disguised remuneration to pay tax as employees, known as IR35, is currently costing the taxpayer around £440m a year, according to the 2016 Budget report.
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