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Self-employment... what IS it?

When someone mentions the word "self-employed" or "self-employment", one would immediately but naturally envisage a scene where that person is essentially: their own boss, they work for themselves and/or they have a large amount of control in what direction their organisation takes. Sometimes, a natural result of this is that the "self-employed" person would employ others to work under them.

However, the answer is not actually that straightforward, at least in a legal capacity. Recently, the Taylor review, which had Matthew Taylor, chief executive of the Royal Society of Arts at the helm, found that modern working practices urgently require clearer legislation on employment status in general. Whilst this is a massive step forward, what the report failed to do, was to fully consider those in "self-employment". There is an essential need is a statutory definition of self-employment, as currently, no statutory definition of what constitutes "self-employment" exists, and this throws up a number of issues. The entire report can be found in full here.

Self-employment without doubt, has its advantages. For example, it allows individuals to work around various commitments and childcare. Further, the labour market may not be a suitable area for everyone and it allows individuals to pursue their hopes and dreams without relying on anyone but themselves.

There have been cases where misclassification have had dire effects on a number of individuals, and these issues have to be resolved to prevent the courts from being flooded with less important litigation. The cases that particularly end before the court are those where an individual is wrongly accused of being self-employed and not paying taxes. These particular instances scream the need for a clear and precise definition of self-employment, which is currently left to those who are neither employees nor workers. For example, a case regarding a freelance designer who was pursued by HMRC for seven years, was cleared of all wrongdoing at the conclusion of his battle. This could have been avoided if a satisfactory definition of "self-employment" were present and would have had the benefit of being able to save the taxpayer money.

Whilst Mr Taylor wishes to reform the meaning and term "worker" in favour of "dependent contractor", he simply states that the issues will need to be addressed by the courts, who will then in turn rule on the individual's employment status. It follows that it is likely that a test case would be needed in order to ensure the right reasoning and approach is adopted by a court. This could throw up issues, which was scene in recent litigation regarding plumbers and their employment status. Although in that instance, the court were addressing the concept of the "gig economy" (explained here).

Whilst the review has not addressed the fundamental issues attached to self-employment, there are two particular findings that have been made. Firstly, it is argued that the government should recognise the wide variety of forms of modern self-employment. Long gone are the traditional structures of businesses, and the same applies to those in self-employment. There are now different factors that have an impact on which form self-employment takes, such as technological advances and the ability to work remotely, for example. Secondly, the government should focus on encouraging self-employed people to plan for the future. This has advantages as it would mean that it actually reduces the potential scenario whereby the taxpayer has to pick up additional costs associated with things such as bad health or poorly planned retirement saving.

The biggest question that arises from the current set of circumstances is this: "How do we judge whether somebody can in fact, be deemed to be self-employed?". It is clear that Mr Taylor appears to think that the matter of whether or not the worker is controlled by their employer should be the sole determining factor. This is despite a submission from the Association of Independent Professionals and The Self-Employed’s (IPSE), who put a full list of criteria was forward. Together, these criteria would decide whether or not a person could be deemed to be self-employed. The approach taken by Mr Taylor in this instance is unsatisfactory. Surely a closer inspection of the arrangement would be needed, and this would have to take place on a case by case basis. There may in fact, be factors outside of the control of the employer that would swing in favour of "self-employment", which would be much more just. It would seem logical to consider factors such as: being able to choose when a person can work, being able to choose where exactly they decide to work, whether they are to be paid through PAYE and whether the work is project-based.

Oddly, whilst the findings of the Taylor Review were welcomed by the Prime Minister, it appears that no further comments were actually made, nor any action taken to legislate for a meaning. Arguably, the report has become somewhat tokenistic if this is to be the approach by the government.

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