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- IPSE research: “pay as you go” tax would leave freelancers struggling with cashflow and heavy admin burden
IPSE research: “pay as you go” tax would leave freelancers struggling with cashflow and heavy admin burden
- 23 Jul 2021
New research being reviewed by HMRC shows the idea of “pay as you go” monthly or quarterly tax payments would leave two out of five freelancers (40%) struggling with cashflow.
The research was produced by IPSE (the Association of Independent Professionals and the Self-Employed) in response to an HMRC consultation on the possibility of increasing the frequency of self-employed tax payments.
The research found that nearly three quarters of freelancers (72%) would struggle with the increased administrative burden if they had to pay tax more frequently. As a result, two thirds of freelancers (63%) were opposed to paying corporation tax more frequently, and three out of five (57%) were opposed to more frequent income tax payments.
Two out of five freelancers (39%) said paying taxes more frequently would leave them less able to cover unexpected costs, while over a third (34%) feared monthly or quarterly tax payments would lead to hidden HMRC or interest charges.
Another serious problem for many freelancers is where the money would come from: although 75 per cent of freelancers have money set aside specifically for taxes, one in five (19%) would have to use money that’s currently covering their business expenses and almost a fifth (17%) would have to use money currently invested in their business. Another one in ten (11%) would have to divert money that is covering their personal bills and expenses, while 7 per cent have already used the money they would need for taxes to pay off debts.
The research also found that more than two-thirds of freelancers (69%) are opposed to in-year income tax calculation instead of retrospective calculations. For corporation tax, this rose to 76 per cent.
At present, 44 per cent of freelancers pay income tax once a year, 39 per cent pay twice a year and 14 per cent pay more than twice a year. Given the choice, 45 per cent want to pay annually, one in six (16%) want to pay twice a year, one in five (20%) would prefer to pay quarterly and another one in six (16%) want to pay monthly.
Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed), said: “HMRC is consulting on possibly making self-employed tax payments – income and corporation tax – more frequent. Some freelancers can see benefits to this proposal: 42 per cent of sole traders and 30 percent of company directors felt it would reduce the stress of paying a large tax bill. On the whole, however, it seems freelancers think this would be much more hassle than it’s worth – and could even leave many out of pocket.“The biggest worry across the board is admin burden: unsurprisingly, most freelancers think they would struggle with having to go through the already arduous process of self-assessment every month or even every three months. This is, quite simply, time when they could be making money.
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