Employed or self-employed?

Changing working patterns are putting pressure on the way in which workers are classified. Differences in tax and National Insurance suggest that a basic inequality may exist between employed and self-employed workers. The system offers incentives to avoid categorization as employees. Governments have reacted to this with special legislation, notably the Construction Industry Scheme and the 'IR35' legislation on personal service companies.

In a discussion paper prepared by for the Tax Law Review Committee, Professor Judith Freedman of the LSE has examined a number of questions on this topic:

• do changing work patterns require a new approach to worker classification for tax purposes?
• is the case law which governs the area sufficiently robust and clear, especially following the 'IR35' legislation?
• what is the relationship between classification of workers for taxation and classification in other areas of law, particularly employment law?
• are taxation developments consistent with the Government's employment law policy?
• is taxpayer guidance on classification adequate or could Government do more?
• do administrative arrangements and appeals on worker classification work well?

The discussion paper looks especially at the problems of homeworkers, casual workers, construction workers, agency workers and personal service companies. It also considers the tension between the Government's use of tax incentives to encourage entrepreneurship and its desire to stamp on tax avoidance.

The discussion paper is published to encourage debate on the issues and to inform the TLRC's further work on this subject. Comments are invited to Judith Freedman c/o The TLRC, IFS, 7 Ridgmount Street, London WC1E 7AE.

Ends

Notes to editors

1. The discussion paper, Employed or Self-Employed? Tax Classification of Workers and the Changing Labour Market, by Judith Freedman, is available from IFS, 7 Ridgmount Street, London WC1E 7AE for £30 (£15 to IFS members).