Empowering the Freelance Economy

Self-employed could be targeted for higher taxes

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OPINION

There are signs emerging that higher tax rates and fees for the self-employed could be on the cards to pay for the Companies House overhaul and new laws over off-payroll non-compliance

Many people believe that most problems can be solved with money. But who ultimately pays the price is the million-dollar question. If tax avoidance and non-compliance within the UK’s umbrella and payroll sectors are to be enforced and possibly even regulated, then that’s going to take more public sector employees to see things through. And I have a feeling that it will be higher taxes and fees on the self-employed that will be footing the bill.

Why not the hiring companies you may be thinking? Well, large companies have too much say and sway in politics, whereas freelancers and small companies do not. That’s despite the self-employed representing 4.31 million people (and votes). They are a big, easy tax target.

Perhaps I am lining up the dots. Seeing signs that could back up my prediction about higher taxes for freelancers and small business owners. Here’s one example:

“The off-payroll working problem could be permanently resolved if the total amount of tax and national insurance contributions (NIC) payable by individuals and the engagers of workers was the same or similar across all sources of income and did not vary between those whom the tax system currently treats as employees and as self-employed.”

That’s the opinion of the ICAEW. And they are not alone in their line of thinking.

Organisations such as the IFS have argued that it is the salaried or employed workforce that has had a bum deal when it comes to tax rates. The IFS argues in one report that lower tax rates for the self-employed are not justified.

ICAEW’s Tax Faculty expressed their view in ICAEW REP 81/23 in response to the consultation Tackling non-compliance in the umbrella company market published on 6 June by HM Treasury, HMRC and the Department for Business & Trade (DBT). This repeats what the Tax Faculty has said on previous occasions. 

 

Pending a long-term solution, the ICAEW says the options in the consultation document for regulating umbrella companies to tackle tax and employment law non-compliance in the contingent labour market, as well as the abuse of the VAT flat rate scheme and employment allowance, are “not mutually exclusive” and the government “could introduce a combination”. However, ICAEW says any changes need to be:  

  • given legal vires by way of primary legislation that contains appropriate safeguards; 
  • underpinned by clear guidance; and 
  • firmly and fairly enforced by HMRC, DBT, and other relevant government departments

ICAEW also stated that it needs to be easier for employees to enforce their employment rights.

“There should also be a single employment rights enforcement body as proposed previously by the government,” according to the ICAEW. Along with the records at Companies House to be “substantially improved” to facilitate the identification of associated companies, multiple directorships, etc.   

The last suggestion about Companies House is in line with a recent statement by the government warning that higher fees are likely to be charged for greater powers and resources to be allocated to Companies House staff. Read The Freelance Informer report here.

Could equalised tax rates be the government’s quick fix solution to get rid of IR35, tax avoidance and dodgy umbrella company practices like skimming? I fear that is the route they may be heading at the peril of the economy.

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