Within the space of a couple of weeks I have been asked by three different clients if I could explain what defines a person as being self-employed.
There was a time not so long ago that I would have confidently answered, quoting the ‘7 badges of trade’ definition.
These days it’s a lot less clear, and I’m not the only one who thinks so. High profile court rulings over plumbers from Pimlico and Uber taxi drivers have left everyone advising on employment status and tax implications scratching their heads. The ‘gig economy’, zero hours contracts and the like have greatly muddied the waters and the result will likely affect anyone not on a straightforward employment contract.
So are the days of the self-employed numbered?
Matthew Taylor, who is heading the Government’s enquiry into the way millions of people work, says there is evidence some firms are using self-employment rules to avoid paying tax. What, really? You have to wonder how in touch they are with the real world if they’ve only just woken up to this.
The Treasury’s take has undoubtedly fallen with the rise in ‘self-employment’, the problem being:
· The worker pays less tax – the Institute of Fiscal Studies says employed people pay an effective tax rate of 31% compared to 22% for the self employed, who pay less NI and can also offset certain expenses (although I don’t know where they have got these figures from)
· Businesses make no NI contributions on those classed as self-employed
Chancellor Philip Hammond is understandably concerned about the issue and is widely expected to announce tax reforms, balancing the treatment of employed and self-employed people. This could happen as early as the Budget on 8 March. We have already seen a HMRC drive against personal service companies, such as those that are commonplace in the NHS, public services and media. The gig economy and growing number of self-employed must be in their sights.
On the flipside, it has created more flexibility in the economy which some will argue is a good thing. Small businesses in particular see the costs and risks of employing someone as too high, with a fear that they will not be able to get rid of them if the work dries up, they can’t afford them – or they are just not up to the job. The ability to use someone when you need them, with no ongoing commitment (on either side) is far more appealing.
Until we have more clarity – and that needs to come now from the taxman rather than judges – then it is sensible to stick to the traditional measures of employment when deciding whether you, or someone working for you, is employed or not. We are happy to discuss your particular situation in more depth; just click on the link http://bit.ly/2lcING5