HMRC collected £819m in additional tax through payroll investigations, a 16% year-on-year jump.
The law firm Pinsent Masons gathered these figures with a Freedom of Information Request. Speaking to AccountingWEB, Pinsent Masons' head of tax investigations Paul Noble said HMRC is targeting the grey area in employment status.
“We’ve had this grey area in the middle that makes it difficult to fully categorise people. It’s where all the controversy arises,” he said. “HMRC wants to eradicate as much of the grey as possible and firmly stick as many people in the employed status category. HMRC’s preference is for individuals to be fully employed because tax can be deducted at source and there’s less scope for expenses to be claimed.
“So it’s a matter of increasing the tax take but also enhancing the timing of that tax being recovered,” continued Noble.
However, an HMRC spokesperson comprehensively denied Pinsent Masons assessment. They said, “Whether you're employed or self employed is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.”
But Noble insists the political hot-button issue of employment status is creating trouble for businesses. “The problem you have is that there are issues around tax and social policy running across each other,” he said, referring to the political anxieties over the gig economy.
The government recently published its response to the Taylor Report, the investigation into the gig economy. The likely result will be the ‘worker’ category being altered to a ‘dependent contractor’ status, which would straddle the divide between employed and self employed.
Dependent contractors wouldn’t be employees, but unlike self-employed workers, they’d have worker rights. It’s expected that a new dependent contractor test will be formulated which places a far greater emphasis on control.
For businesses, the dependent contractor status will eliminate the advantages of using a contractor. Speaking to AccountingWEB at the time, Alastair Kendrick, an employment tax adviser, noted: “there’s massive growth in the number of self-employed people. This test is effectively to curb that number back and put it back into proportion.”
So Noble’s reasoning that HMRC is zoning in on employment status isn’t without context. Rebecca Busfield, a partner at Watt Busfield tax investigations, confirmed that she’s seen an increased HMRC focus on "all areas" of employment taxes.
“HMRC is doing more cross tax investigations (covering Corporation tax, VAT and PAYE) to save them time and on the assumption that where a business makes errors on one tax, there are likely to be errors in other areas too," said Busfield.
“We have also seen more input from HMRC’s labour market team with specialist inspectors coming to meetings to check compliance in relation to the labour supply chain, minimum wage, modern slavery, rights to work in the UK and the construction industry scheme - especially where agents or subcontractors are used.”