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Does the government really want entrepreneurship?
- 28 May 2021
The new Business Secretary Kwasi Kwarteng has said one of his top priorities is to support the UK’s “great entrepreneurs” and “champion business”. But is that really the wider government’s position? Mostly, when we talk about “entrepreneurs”, we’re talking about self-employed people – specifically sole directors of limited companies with plans to scale up. But if there is one group the government seems to have targeted with punishing, destructive policies in the last year, it’s limited company directors.
The sector government left behind
After IPSE pressed government into creating a support scheme for the self-employed during the pandemic – the Self-Employment Income Support Scheme – it flatly refused to include limited company directors. Despite IPSE’s campaign to get support to limited company directors – including offering what the Treasury Select Committee described as “a ready-made solution” – government simply would not extend support to this key entrepreneurial group.
Government’s argument was that limited company directors could simply furlough themselves using the Job Retention Scheme. The problem was, though, that the payout was based on salary and the majority of limited company directors only pay themselves a minimal salary, taking the rest of their earnings in dividends. From the government’s refusal to accommodate this, you get more than a little suggestion it basically opposes this approach. This, however, is simply how most accountants advise limited company directors – from budding entrepreneurs to graphic designers and IT contractors – to pay themselves. To us, it seems beyond unjust to punish them for this.
The changes to IR35
Then, of course, there is the ten-tonne elephant in the room: IR35. It’s… let’s just say a little difficult… to see how government can be said to be championing entrepreneurship when it has introduced a policy like the changes to IR35, which specifically and damagingly targets limited company directors. IR35 itself – allowing HMRC to drag limited company directors through intensive, damaging investigations to clamp down on supposed false self-employment – is a mark of the government’s fundamentally suspicious and distrustful approach to limited company directors. The changes are a positive assault on the institution of the limited company director.
Shifting responsibility for determining IR35 status from contractors to their clients would have been damaging at any time, but doing so amidst the damage from the pandemic – and after entirely cutting limited company contractors off from support – has been nothing short of disastrous. Four out of five contractors are still worried about the changes to IR35 and this is why despite rising confidence in the economy more generally, contractors’ confidence in their businesses is actually declining. This gloom is hardly surprising: IPSE research shortly before the changes came into effect last month showed a quarter of clients (24%) were blanket-assessing all their contractors as inside-IR35, while a fifth (21%) were only planning to engage contractors through umbrella companies.
Government knew the impact the changes to IR35 would have – we made sure of that – but it pushed ahead anyway. Between this and the government’s evident disregard for limited company directors during the pandemic, it is hard to see how it can overall be “championing” entrepreneurs. We don’t doubt the Business Secretary’s intention to support the UK’s entrepreneurs, but it seems the Treasury and HMRC haven’t got the memo.
What we're doing
So, where from here? Well, to start with, we’re making this discrepancy clear to government: supporting entrepreneurs must mean supporting limited company directors – something HMRC and the Treasury have singly failed at. Supporting entrepreneurs must mean helping the UK’s smallest businesses during and after the pandemic – helping with the mounting debt many directors have been left with and undoing the damage caused by their exclusion from SEISS. Supporting entrepreneurs must also mean stepping in and clearing the mess left by IR35: properly regulating umbrella companies and ensuring client businesses are correctly and individually assessing contractors – ensuring they hold up their responsibilities as engagers. And it means, above all, stressing to government that entrepreneurship is limited company directors, and that this vital group must not be taken for granted and, worse, hounded as a tax target.
Coronavirus Hub
The self-employed have been hit particularly hard during the pandemic, with many excluded from government support. However, IPSE has been here throughout the pandemic, advocating on your behalf, member or not, and supporting our members with helplines, webinars and advice.
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