The potential for non-compliance in the world of work is substantial. To help reduce the risk of businesses not complying with their obligations ICAEW’s Tax Faculty recommends that government:

• makes it simpler to determine employment status;
• changes the tax/national insurance contributions (NIC) system to reduce the fiscal incentive to classify workers as not being employees;
• incorporates into national minimum wage (NMW) law the power for HMRC to exercise discretion over unintended technical breaches by employers; and
• ensures that employment law is consistent across the four nations of the UK.

ICAEW Tax Faculty expressed this view in its response (ICAEW REP 46/22) to the call for evidence published in April 2022 by BEIS and the Home Office.

Determining employment status is difficult. For organisations that use contractors, the IR35/ off-payroll working reforms have brought to the fore the risk of incorrectly determining employment status. The move to greater home working has blurred the boundaries and recent court cases have highlighted the complexity of determining employment status, albeit without providing the clarity needed. The structure of the income tax and NIC system, in particular the cost of employer’s NIC, results in a fiscal disincentive to classifying workers as employees, both for the workers and the engagers.

The faculty agrees with the principle behind having a NMW, but the complexity of the legislation means that it is too easy to trip up without realising it. The legislation sometimes has a detrimental impact on those who it is intended to protect. In addition, unlike tax law, NMW law does not include a provision allowing HMRC to exercise discretion when enforcing NMW. Therefore, HMRC is unable to adopt a flexible, behaviour-based approach to enforcement and penalties. Instead, it is obliged to penalise employers for unintended and unexpected technical non-compliance.

Lastly, inconsistency between employment laws in different parts of the UK is confusing for employers. For example, Northern Ireland has separate laws which do not always align with those for the rest of the UK.