The new IR35 tax rules are forcing self-employed people to close down their businesses and turn to full-time employment, due to contract rules being left in disarray.
Currently, contractors are in charge of determining their employment status, however, from April 2020, this will be the responsibility of employers in order to prevent “disguised employees” cheating the employment tax system.
In fear of determining the wrong type of employment status for workers, businesses would rather make their contractors full-time employees, or stop hiring freelancers all together, to avoid the chance of incurring their company a hefty fine.
However, some self-employed workers say that, as a result of leaving freelancing, they will end up contributing less in taxes than they did before, proving that this new tax reform will do more harm than good, by causing workers to earn less, be discouraged from building their own businesses, and also, in the end, pay less tax.
One freelancer, 55, who is still contracted by HSBC, said he would have no choice but to eventually make the move to be a full-time employee.
“I generate around £80,000 a year for the taxman as a freelancer in VAT, corporation tax, National Insurance and the rest. If I went back to being an employee, I’d earn a lot less. After I and the employer have paid our dues – income tax, National Insurance, the apprenticeship levy – the Treasury would end up with around £58,000.
“I’ve got until April to find a job or I’ll be taking a big pay cut and have no benefits to show for it,” he said.
IPSE has called for the next government to “pause” the incoming IR35 legislation.
This is in response to research by Robert Half UK, which showed that many people were feeling business anxiety around the changes to IR35 coming in April 2020.
Three in five (62 per cent) medium and large private sector businesses worried they would miss out on skilled contractors when IR35 expands into the private sector.
42 per cent of senior decision-makers in medium and large private sector businesses were also worried about losing their current freelancers if contact renegotiations were not implemented in time.
Andy Chamberlain, deputy director of policy at IPSE, said: “The next government must, as a matter of urgency, hit the pause button on this legislation, which will be damaging not just to freelance contractors and the businesses they work with, but to the UK economy as a whole.”
Mr Chamberlain said: “This survey lifts the lid on just how worried UK businesses are about the IR35 changes. Ever since the changes were announced, IPSE has warned they will significantly restrict the supply of flexible labour to businesses that rely on it.”
Data suggests that more than 30,000 NHS workers in England are trapped on zero-hour contracts. However, trade union GMB believes this figure is likely to be even higher, as these statistics don’t include outsourced workers.
Contracts which don’t guarantee a minimum number of hours are said to have quadrupled since 2013. Critics say the contracts are introduced by employers in order to undercut wages and avoid paying pension contributions and holiday pay.
Workers on zero hour contracts don’t know what dates and hours they’ll have to work, how many shifts they have, and on top of this, they don’t require a notice period so can be sacked on the spot.
GMB national officer Rehana Azam said: ‘The NHS is under enormous pressure and cuts and privatisation are linked to a rise in so-called gig economy working.
‘If you are employed on a zero hours contract then you are denied financial security and the right to predict your hours, and they can make it impossible to access mortgages.
‘A pressured, demoralised and casualised workforce will end up impacting on patient care.
‘Zero hours contracts have no place in the NHS or elsewhere, and these figures may represent the tip of the iceberg.
‘We need a new system that preserves some degree of flexibility while ending contracts that do not.’
The Demos think tank say that contractors and other flexible workers should be given a higher minimum wage than those in secure full-time employed roles.
The think tank say that a higher wage would cushion freelance workers whose earnings aren’t secure and fluctuate.
As it stands, the National Minimum Wage is £7.70 an hour for 21-24 years olds, £6.15 for those aged 18-20 and £4.35 for 16 to 17-year-olds or £3.90 if they are part of an apprenticeship scheme.
The Labour party pledges they’ll introduce a £10 minimum wage in 2020 for all employees aged 16 and over.
The Conservatives plan to lower the age limit for the National Living Wage to 21 and pay around £10.39 per hour by 2024.
Debt is a huge problem for many self-employed people. Figure from Business Debtline, a charity for self-employed people, found that over half of those who contacted them in 2018 now have debts of more than £10,000, with 23% owing more than £30,000.
To ensure that you don’t fall into debt, read on.