Business Law & Compliance
Paying tax must be just as ironclad for self-employed workers
4 min read
06 March 2017
While the self-employed helped Britain's economic recovery, Charlie Mullins believes legislation is needed to ensure the paying of tax is better monitored.
People need to wake up and stop assuming that being self-employed is a ruse to avoid paying tax, because it just isn’t true.
The recession hit millions of people hard, and thousands were forced to go freelance, speeding up a process, which was already well and truly in motion. Freelancing and self-employment are things that, if the UK wants to take a place as an independent forward looking economy in the post-Brexit era, we must embrace.
The Treasury however, seems to have cause for concern and in this week’s Budget the chancellor, Philip Hammond, could announce the plans to overhaul the paying tax method for the self-employed.
It seems that the chancellor, like so many others, believes that there’s a strong case to tackle the growing discrepancy between workers paying tax using PAYE, the self-employed and those who run personal service companies.
According to the industry-body IPSE, freelancers contributed a total of £119bn to the economy last year, a rise of £10bn from 2015. This translates to 42 per cent of the 4.8m self-employed population, which is rapidly growing. The old ways are making way for the new, and just because things are changing doesn’t mean people are on the fiddle.
It’s not just the billions in tax paid by all these independent traders, but the knock on effects their activity is having on the rest of the economy. From new houses, designer clothes and fuel, to sandwiches and coffee, freelancers are fuelling the 21st century UK economy.
But perhaps there does need to be some sort of reform. When it comes to classifying workers, the facts and figures need to be crystal clear. In the Autumn Statement in November, the chancellor suggested that some sort of review was in the distance, perhaps referring to the Budget. He stressed that “technological progress is changing the way people live and the way they work – the tax system needs to keep pace”. But the pace of the issue is currently outstripping the action being taken by government.
A couple of weeks ago we lost a case against a plumber who did work for us on a self-employed basis for six years. He took advantage of the benefits of that status, before deciding he wanted to have his cake and eat it, and sued us for employment rights as an employee.
The current law, according to the Court of Appeal, says that despite this plumber having been VAT-registered and paying low corporation tax (not higher PAYE), supplying his own materials, and claiming tax relief for employing his wife, an accountant and using his home as an office, he was, in fact, not self-employed.
It seems that we do need some real reform here, which is why I would, as well as whatever comes of the chancellor’s Budget speech, respectfully request a hearing from Matthew Taylor’s review of employment practices, which he has been commissioned to carry out for the government.
This is very important. Honest businesses like mine are not ripping off HMRC, and if this misconception is allowed to continue we may end up killing the golden goose, which in this case is the very same bird that dragged the UK out of recession.
If the treasury are going to change the way that the tax system works, it needs to do so by keeping promises and confirm that the taxation of different ways of working is representative and fair of the individuals involved.
We need leadership and legislation from government, not vague suggestions, that honest businesses might be up to no good.