The right amount of tax

I have just been looking at two National Insurance issues in the press.

In one case, a man was claiming a higher national insurance pension on the grounds that the government should have spotted the NIC saving scheme his employer was using and stopped it. Because the government had failed in its duty it ought to pay him more pension without being able to claim the back NIC from him (as the saving scheme only benefitted him in recent years because his employer paid the same amount of NIC either way). The tribunal dismissed his case although it did comment that there seemed to be some failing in the government system back in the early 1980s.

The other case is the government's consultation document on workers in the contruction industry. Not content with the CIS scheme (which means that smaller contractors have tax deducted at source from their income from main contractors) they want to go a stage further and recategorise large numbers of smaller contractors as employees for tax and NIC purposes.

What is the benefit for the government? There are differences in the rules for claiming tax relief on expenses, so there may be a higher tax take but the big difference is the NICs (the self-employed pay at most 8% whereas the take from employers and employees is over 20%). One commentator has suggested that if the tax rules are changed so that there is little difference in the overall tax take, workers will worry less about whether they are employed or self-employed. I think this misses the point.

The difference between employed and self-employed workers is in their rights. If you are an employee, you have employment rights and special tribunals to make sure you get them. As an employee you are entitled to various benefits (unemployment benefits and statutory sick pay and benefits when a child is on its way). As a self-employed worker your only rights are under the deal (contract) you make with the employer and if you are off work for any reason, the only benefit you might receive is a tax credit.

By all means change the rules, but please make sure that the change is proportionate - in other words, if you are going to increase the "tax" take (which is going to be mostly NICs), then expect a lot of benefit claims from construction workers and make sure that they are given employment rights too.

But of course expecting employment rights is probably too much - after all when IR35 was introduced back in 1999, the original intention was to tax the engaging company - and the rules changed after complaints from the bigger business lobby, so that it was the subcontractor who was stung with the new tax. And what was the new tax? Taxing the subcontractor as if he was an employee without giving him any employment rights against the engaging company.