It suddenly feels like an unusual time to be a freelancer in the UK. From week to week, the variety of mixed messages coming out of Westminster – with regard to self-employment, freelancing or working as an SME – can leave you feeling embattled and supported in almost equal measure.
Aside from last week’s IR35 confusion (you can read about the changes to PSC tax here), the last two weeks have also seen an eagerness to criminalise late payments on invoices to freelance workers, as well as a growing concern that the same freelancers aren’t paying their fair share in terms of tax.
If you weren’t busy enough trying to find freelance work and then deliver it to your usual high standards, now you have to find time to keep up with the outcome of HMRC’s latest “late night sessions”. (If this writer didn’t have the support of a friendly online accountant, I’d be losing a generous mixture of hair and sleep.)
To give you a brief overview of these recent changes, in late January the government unveiled plans to address the huge figure owed to freelancers in late invoice payments – a very good thing, as far as the freelance community is concerned, and something that was largely applauded.
It is thought that a whopping £26.3 billion is owed to freelancers, small businesses and SMEs (Small to Medium Enterprises) in the UK in late payments, and that around 60% of SMEs are paid late, with three quarters forced to write off debts.
Margot James, the government’s Small Business Minister, announced a new ‘Duty to Report’, which – from April, 2017 – will require large companies and limited liability partnerships to publish their payment practices twice a year. For freelancers, this will allow the chance to review potential employers’ track records before deciding if they wish to work with them.
“It’s completely unacceptable that small and medium-sized businesses are owed £26.3bn in late payments,” said James, explaining that the current situation, “hampers their ability to grow and has no place in an economy that works for all.”
Meanwhile, two weeks later, we’re told that the ‘entrepreneurial spirit’ that has seen freelancing and self-employment skyrocket in recent years results in an inequality when it comes to the amount people are taxed. A report by the Institute for Fiscal Studies concluded that the lower tax rates afforded to the self-employed community has left the rest of the country unfairly out of pocket.
“The self-employed get a tax advantage equal to an average of £1,240 per person per year as a result of lower National Insurance contributions relative to employees,” the report said. “This cannot be justified by what are now only very slight differences in benefit entitlements. The self-employed pay £3 billion a year in NICs. If they were treated just the same as employees they would pay £8 billion a year.”
Unsurprisingly, the self-employed community has responded angrily, pointing out that the, “very slight differences in benefit entitlements” have been grossly understated. “The IFS, like many others, have totally failed to recognise the huge differences between employment and self-employment,” said Chris Bryce, CEO of IPSE.
“Working for yourself means taking on all the risk – you get no sick pay, no paid training, no employer pension contributions, no big company benefits, and no guarantee of another job when your contract is complete.”
Elsewhere, Julia Kermode of the Freelance and Contractor Services Association (FCSA) pointed out that, “Self-employed people do not have access to NICs-funded statutory benefits like unemployment benefit or sick pay, and when it comes to maternity allowance, employees receive at least 57% more in maternity pay than self-employed workers.”
She went on to note that, “[self-employed people] will need to have paid 35-plus years of NICs in order to receive the state pension, and many might not be in this position, so it is far from a level playing field.”
There’s a genuine feeling of confusion in the run-up to the 2017 budget announcements – a sense that the hand that gives is also very keen to take away, and it can certainly be quite stressful keeping up with the changes and knowing what to do about them.
At My Accountant Friend, we’ll be keeping as close an eye as we possibly can on the situation in the coming weeks. To stay up to date, you can subscribe to our Facebook and Twitter accounts, and get in touch if you ever feel you need something specific explained. We await further developments with amazement.
