Budget: Is the gig economy in the Chancellor’s sights?
02 March 2017
Deep in the Office for Budget Responsibility’s (OBR) 264-page report on the UK’s economic and fiscal outlook, published last November, was an important statistic: in 2020/21, the cost to the Treasury of the gig economy (in terms of lost tax revenue) will reach at least £3.5bn per annum.
The emergence of the gig economy has been one of the most high-profile symptoms of the changing nature of work. According to the Office for National Statistics, the number of self-employed people in the UK has increased by 26% in the past 10 years to 4.8m, or 15% of the UK’s workforce. But a side-effect of its development is that different rates of tax are paid according to how a company’s workforce is structured. The self-employed pay lower national insurance contributions than employees, and reduced contributions for self-employed are expected to increase by 60% from £3.2bn in 2015/16 to £5.1bn in 2016/17.
This isn’t something that the Government can ignore. As Chancellor of the Exchequer Philip Hammond MP said in the wake of the OBR’s report: ‘Technological progress is changing the way people live, and the way they work. The tax system needs to keep pace.’
The Government has taken a number of steps to tackle structuring opportunities, including the ‘salaried members’ measures, which ensure that some partners of limited liability partnership are treated as employees for tax purposes, and the restriction of the NIC employment allowance.
So, should we expect more of the same in this year’s Budget? It’s possible, but by no means certain. There’s a distinct possibility that the Chancellor will choose to wait for the results of its review into employment practices, headed by Matthew Taylor (which is due to report this summer), before taking any action.
But be sure, the measures will come. There’s been a clear direction of travel in recent years. Some of this has been from a legal angle, to clarify the lines of distinction between employees (who are entitled to the full range of employment rights and who are taxed through PAYE), workers (who are entitled to some employment rights such as the minimum wage and annual leave), and the self-employed (who have little or no entitlement to employment rights).
Other steps have tackled the tax angle. For example, the Government has begun to target individuals who work through personal service companies (PSCs), beginning with the public sector. From 6 April this year, organisations in the public sector that engage PSCs– rather than the PSCs themselves – will hold responsibility for applying IR35 (which will require PAYE and national insurance contributions to be withheld on payments to PSCs). It remains to be seen what impact this will have on the public sector, but we shouldn’t be surprised if this approach eventually is applied to the private sector, too.
These changes to employment structures are coming, it’s only a matter of when. So employers need to be prepared. If a self-employed contractor becomes an employee, the cost to the company using them increases substantially when employer NICs, minimum wage and holiday pay are taken into account. There could also be VAT implications. Workforce strategy may need to be reassessed and rethought. The risks as well as the benefits of engaging in the gig economy will need to be measured and managed. Don’t wait for the Chancellor – the work starts now.