Horizontal equity and the taxation of employed and self-employed workers

The schedular system of income tax in the UK frequently comes under attack, not least in relation to the distinctions it draws between the tax treatment of the employed and the self-employed. However, on examination, it appears that non-schedular systems of taxation share both these distinctions and the difficulties that arise from them, albeit to varying degrees. The division between employed and self-employed is also problematic for social security systems. These difficulties are found, to a greater or lesser extent, in all the jurisdictions studied by the authors. It may be argued that all or some of the tax and social security differences are justified by fundamental economic and legal differences between the nature of employment and selfemployment relationships. This may be true where the relationships compared are unambiguously, on the one hand, employment and, on the other, self-employment. However, there have always been non-standard relationships that combine characteristics of both these broad categories. This grey area appears to be increasing with changing work patterns. Consequently,the simple dichotomous system adopted by the UK tax and social security systems has come under pressure. This article considers the problems arising from this situation and some of the ideas that have been put forward to deal with them.

Tax policy in the UK post-Brexit

Tax matters figured prominently in the Brexit debate. Current signs are, however, that the UK government is not planning the creation of a post-Brexit ‘Singapore on Thames’ as some had predicted. In fact, we are seeing increases to the main corporation tax rate in response to broader international tax developments and the fiscal upheaval caused by the pandemic. Prior to Brexit, the UK already enjoyed considerable freedom in respect of direct taxes including income tax and corporation tax, but less so for VAT; it has more freedom to change the VAT now, if desired, and has already introduced some relatively small amendments to reflect the new state of play. At this point, the government has exercised its new-found freedoms on tax in quite limited ways—most notably in creating freeports which will benefit from special advantageous customs and tax rules, refocusing R&D tax relief towards activity conducted in the UK, making relatively minor changes to tonnage tax, alcohol duties, and air passenger duty, and removing some narrow EU-focused corporation tax measures. However, these new-found tax freedoms come with new-found restrictions, costs, and challenges for both taxpayers and the UK government. There are significant changes on the tax administration front, which generally complicates matters for HMRC as it will have to rely on less extensive and less convenient treaty and OECD avenues of cooperation. On VAT, teething issues as well as longer-term complications have arisen post-Brexit for businesses and consumers. Provisions remain to control the extent of fiscal state aid, albeit in a less restrictive way under the new subsidy control mechanism in the UK/EU Trade and Co-operation Agreement. The strong overall message is that financial and international pressures and constraints are more important to the direction of tax policy than the fact that the UK has left the EU