Freelancer Limited Company
What are the issues?
At IPSE, we believe there is a growing need for a new company structure just for freelancers. The options currently available do not work well enough for this vital sector of the UK economy, and the limited company model in particular leaves freelancers open to the risk of IR35 investigations.
What we are doing
IPSE has been working closely with EY to develop a new company structure specifically for freelancers. It will not only provide certainty about businesses’ tax and employment status, but should also protect revenue for the exchequer. It will be called the Freelancer Limited Company (FLC).
The ultimate aim of the FLC is to create a benign environment for freelancing to flourish in. Crucially, the FLC would mean freelancers didn’t face the threat of IR35 investigation because to be in the structure, businesses would already have had to demonstrate that they are not disguising employment.
Businesses would be able to choose FLC status – they would not be forced into it. Then, to become FLCs, they would just have to meet a number of qualifying criteria. Once they were met, they would then be normal companies under the Companies Act, but would have to work under certain restrictions to qualify for specific tax treatment.
We have already done a thorough consultation with our membership on the issue of the FLC.
Working with Government to bring the FLC to life
As part of our efforts to promote the interests of the self-employed, in 2015 we submitted a paper to HM Treasury, HMRC and the Office of Tax Simplification (OTS) detailing the FLC concept and how it could be made a reality.
As a result, in its report on Small Company Taxation, the OTS agreed the idea should be considered further:
“We think this developed FLC concept is worth considering further. … If the criteria for the FLC are properly set it could deliver certainty (and hence simplicity) to a large body of freelancers and contractors. At the same time, we are conscious of the risks involved with seeking to give a route out of the ambit of IR35. We are not in a position to make a formal recommendation about the FLC, but we or others may return to the subject in future work.”
We have also had productive meetings with HMT and HMRC officials about the FLC and are hopeful of significant progress.
The need for a Freelancer Limited Company: no more ‘business as usual’
Since IPSE first called for the creation of FLC status in our 2014 manifesto, the operating environment for freelancers has become even more hostile.
In 2015 the Government introduced a range of alarming proposals – including changes to IR35 in the public sector. So IPSE asked Christopher Sanger, Head of Global Tax Policy at EY, to set out his thoughts on what the proposals would mean for the self-employed and why the FLC is needed in response.
Read his letter to IPSE's Director of Policy and External Affairs below.
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