Worrying times for the self-employed
- 21 Nov 2017
It is fair to say the majority of Britain’s army of 4.8 million self-employed workers (one in seven of the workforce) are holding their breath ahead of the Budget. Whether you are a locum doctor, IT professional, graphic artist, actor or candlestick maker you will not be sleeping comfortably. Many freelancers have little faith that policymakers understand their way of working – subject to the vagaries of the marketplace – on a daily basis.
Government would be wise to listen to the growing ranks of the self-employed. Those working independently will soon outnumber the public sector, while freelancers now contribute a massive £119bn to the economy each year. But whichever way you choose to operate, the self-employed look set to be clobbered in the Budget.
Those working through their own limited company could find themselves taxed like employees but with no employment benefits, as a result of an extension to changes to the IR35 tax rules. Sole traders look set to be hit by a reduction in the VAT threshold, while debates about the “gig economy” seem to overshadow the diverse nature of self-employment.
Locum health workers, IT workers and other business professionals often find work through an intermediary (like an agency or a consultancy who sub-contracts to them), and are forced by the market to work through their own limited company, often for three-month contracts. Since last year, the government has sought to tax these workers (in the public sector) as if they are employees at source using a variation of the dreadful IR35 rules, obviously with no plans to give them sickness or holiday pay.
IR35 status is often determined using an automated tool which takes a blinkered view of self-employed workers’ tax status and, according to experts, has missed out some key tests. The privatisation of health services (eg for areas like dermatology) means that health professionals are finding themselves pushed out of their contracts with the NHS and forced into working for a third party – like in Nottingham. Commentators have described this as ‘an unmitigated disaster’. Those trying to go freelance instead are being told by NHS Trusts that they can’t because ‘the computer says no’. Instead they are forced to work through hated umbrella and payroll companies – the very ones the Labour manifesto pledged to get rid of.
In the quasi-public sector, TFL decided it was too tricky to look at individual contracts and decided that all contract staff would have to work through an umbrella company last January. They told staff to take it or leave. Unfortunately for them, many chose to ‘leave it’ and in October this year TFL blamed project delays on IR35 (that too many people left). I wish I was making it up.
HMRC held a meeting with affected groups to discuss the changes in the summer, to puff up what a great success it has all been. But that wasn’t the feedback they got. It then appears that they published a version of the meeting minutes that failed to mention any of the concerns about the changes and the issues.
IPSE – the group which represents independent professionals – formally complained. James Collings of IPSE said “the recent minutes do not accurately reflect the frank discussions at the July meeting and I have today expressed my concern about this to HMRC. In the meeting, myself and other stakeholders raised serious concerns about the significant failings of, and damage created by, the rollout of IR35 changes in the public sector. However, these conversations were not captured in the official minutes”. Lets hope the chancellor isn’t relying on these minutes.
At the other side of the market, the lower paid self-employed have their own distinct set of problems. They are often dependent on tax credits to keep afloat. Many see their incomes fluctuate throughout the year – imagine a jobbing actor or graphic designer. Universal Credit will implement a minimum income threshold meaning the self-employed need to make a certain amount each month to receive support. Have a bad month or be ill and then not only will you earn less – you will also lose your benefits. According to the Low Income Tax Reform Group, you could be £2,000 a year worse off than employees with the same earnings.
The point is that many Government officials, politicians and policymakers seem to assume that all the self-employed are working all the time earning income. What a flight of fancy.
If you are a gig worker then it may be easy to find the next delivery, but if you are an actor, the next play may be harder to find. When the market goes cold – as it did after Brexit – work can be scarce and it can be grim, I know. People can go months without work – it is just their confidence, determination and get-up-and-go that gets them through. Aren’t these virtues the government should be encouraging not penalising?
The recent Taylor Review shed some light on modern working practices, and it is clear that a new chapter is being written in the world of work. With it is an implicit call for the self-employed to rise and organise themselves. We can’t trust or expect Government to do it for us, but neither do we want them to rig the system against us: they must at least give us a fair playing field. Because it is hard enough finding work in a difficult market without having to battle the government as well.
Oh… and the candlestick maker – I expect the Chancellor will raise her national insurance, as he tried to do last time.
Philip Ross is Labour Business’s Ambassador on self-employment and freelancing. He is self-employed, and is currently working as an associate with Co-ops(UK) on WorkerTech. He was a founding member of IPSE and is a new member of IndyCube. He recently chaired the SME4Labour debate on the Taylor Review. He writes in a personal capacity – all views are his own only.
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