Empowering the Freelance Economy

Freelancers face £25 billion tax admin burden

Does the Exchequer understand the economic implications that a series of MTD costs and higher taxes for small businesses and freelancers will have on job security?/Photo Source: RishiSunak.com
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The Federation of Small Businesses is calling on the Government to protect small businesses from unfair profit-seeking behaviour from Make Tax Digital (MTD) software providers and other recommendations to avoid economic hardship for freelancers, contractors and other self-employed workers.

The move comes alongside a list of recommendations to The Chancellor of the Exchequer, Rishi Sunak, including raising the VAT threshold to £100,000 to encourage revenue and recruitment growth and tax credits for revenue fluctuations. Which recommendations could impact you?

  • Federation of Small Businesses (FSB) sets out need for reform as compliance costs and time lost to reporting soar
  • Illustrates how the Value Added Tax (VAT) threshold is serving as a disincentive to grow for more than a million firms
  • Calls for increase in Employment Allowance to mitigate impacts of rising costs with Budget 14 days away

FSB’s new report on tax, A Duty to Reform: Making tax work for small businesses in a digital world, finds that tax admin costs £25 billion and 300 million hours for UK small businesses. That the burden is higher for those firms which have switched to the Making Tax Digital initiative, the lobby group. The report comes after The Freelance Informer reported that Making Tax Digital was not fit for freelancers.

VAT-registered businesses with a taxable turnover below £85,000 will be required to follow the Making Tax digital rules for their first return starting on or after April 2022.

“As things stand, more than a million firms say they’ve stopped growing their turnover because of the VAT threshold,” said FSB chairman Mike Cherry.

“If we want the economy firing on all cylinders again, reform of this levy – seen as the most burdensome of all by firms – is a must. We must stop the £85,000 turnover threshold serving as a ceiling to the growth we desperately need,” he said.  

How much will MTD cost?

Source: FSB: A Duty to Reform Report

Small firms are each spending an average of £4,100 and 52 hours a year on tax compliance, the FSB has reported. For those that are participating in the Government’s MTD programme – designed to fully digitalise the tax reporting process – the average cost of compliance (£4,562) is considerably higher than for those yet to migrate (£2,960).

FSB National Chairman Mike Cherry said:

“We’ve always said that – rolled-out in the right way – MTD could mean productivity gains over the long-term. However, for many of those who’ve already taken the plunge, the programme has so far yielded higher costs and greater complexity.”

Here are the FSB recommendations put forward to Chancellor Sunak

Click each recommendation to read more.

Read our report:

Making Tax Digital: “not fit” for Freelancers – Freelance Informer

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