This year’s budget has sparked much media speculation that Chancellor Philip Hammond will again target people who set themselves up as private companies, and therefore punish the UK’s growing workforce of entrepreneurs. These are the micro businesses, contractors and freelancers that are increasingly the bedrock of our economy. The predicted changes would bring more of these so called ‘personal service companies’ (PSCs) into the IR35 tax rules. In other words, this would see go-getters harshly penalised, when they are already reeling from the Chancellor’s 2016/17 tax grab from this same group.
The Chancellor seems to forget that they already pay 19% Corporation Tax on their profits, and, secondly, unlike salaried employees, don’t get benefits like job security, pension contributions, holiday pay, sick pay or employee protection on a plate. Those who are, or have been, freelance will know that it’s often ‘feast or famine’. If no-one needs you for a week, or a month, you don’t get paid. Also, many companies will only give projects to limited companies, so many individuals have little choice but to set up a PSC.
They must also deal with the government’s myriad of reporting requirements, pay for accounting, collect VAT if registered and submit VAT returns. That’s on top of all the ‘normal’ administration in addition to seeking contracts and actually doing paid work. They take all the risk and many work on very short-term projects. They have little or no job security or employee benefits and rumour now suggests that the Budget is going to penalise them again - for the third year in a row.
Since 2001, there has been a 41% increase in the number of self-employed and freelance professionals. The surge can be largely attributed to the UK’s post-recession economy, which has forced businesses in a range of sectors to become more risk-averse - increasingly nurturing relationships with the two-million-strong freelance community rather than hiring full-time staff.
With the ongoing uncertainty over Brexit, this is a trend that is likely to continue and if hiring self-employed workers is helping big companies mitigate risk, shouldn’t the government be doing more to help rather than hinder the self-employed? IR35 is a flawed and unwarranted tax ruling and will only serve to damage the self-employed who are increasingly underpinning the economy.
Should we not value these workers who allow businesses to access expertise and support at a price that’s right. In fact, the government should be considering how to better support and protect solo-freelancers, not punish them for providing a service that is valuable and accessible.
As a business owner myself, I am highly concerned that the Chancellor is looking to punish this new wave of entrepreneurialism. His recent declaration that the Conservatives “have business at its core” rings rather hollow. Large multinational companies are paying little or no corporation tax. Take Mondelez UK, owners of Cadburys’ chocolate, which reported a profit of £185 million for the year, yet paid no Corporation Tax in Britain. In fact, it even recorded a tax credit of £320,000.
I guess it’s much easier to go for Mr and Mrs Average who are busy making ends meet and can’t afford the expensive tax specialists needed to exploit every loophole going to pay as little tax as possible.
What these hard-workers should be offered is a reduction in corporation tax to encourage growth and investment to create further opportunities for others, and even more employment. From small seeds of self-employed, solo-workers there is the potential to grow bigger things. These are potentially the employers of tomorrow, but instead of yielding tax from the the big businesses that pay to avoid it, government goes for the ‘easy’ option.
I am confident that any resultant revenue raise for HMRC in the short-term from this latest tax hike will prove damaging to the UK economy in the medium- and long-term. If HMRC wields the ‘stick’ on PSCs often enough, many of them will simply close their businesses, and go back to paid employment at lower rates or swell the ranks of the unemployed. Those in their late 50’s or older will retire if they can afford to.
Ivo Weevers is the co-founder of Albert, a pocket book-keeping app for micro business owners