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Government discriminates against self-employed

Government discriminates against self-employed, says Robert Salter.

Extensive support has been provided to employees – via the furlough scheme – and many established businesses via business rates holidays and Government-supported loans but Government’s policies both before and during the pandemic have often discriminated against and disadvantaged the self-employed.

With unemployment having increased sharply during the pandemic – and now standing at approximately 5%, a rise of almost 1% from the same time last year – the Government should be doing everything possible to encourage entrepreneurship and to support those individuals who are already in self-employment or are actively seeking to become freelance or self-employed workers.

This is especially necessary given the struggles that many established parts of the economy have suffered over the past six months and the understandable reluctance of such established businesses to recruit full-time, traditional staff at the present time.

The discrimination continues with the Government’s proposed changes to the so-called IR35 rules.

These rules will – in simple terms – result in many freelance contractors working via their own companies (so called Personal Service Companies (PSCs)) being treated as ‘deemed employees’ for tax purposes.

Contractors caught by IR35 will in future suffer a double whammy – typically being treated as employees for tax purposes, while not having any of the benefits typically associated with employment, including employer-provided pensions, paid holiday and sick pay and the increased job security that regular employment can bring.

The IR35 changes undermine the flexible labour markets which have been a hallmark of the UK economy for over 30 years – at a time when we probably need even more flexibility than ever before.

Similarly, whilst the Government has provided significant support for employees and some self-employed during the pandemic, those individuals who started their new businesses in 2019/20 (and often also in 2018/19) have not been eligible for any support via the Government’s Self-Employment Income Support Scheme (SEISS).

Many people working via personal service companies have been equally disadvantaged and received little or no support from any of the Government schemes.

Unfortunately, the steps that the Government are already taking with IR35, or have indicated that they are looking to take over the coming months, by potentially increasing the National Insurance Contributions (NIC) paid by the self-employed, are actually actively undermining any economic recovery.

By increasing the costs of becoming self-employed, the Government is actively disincentivising those who are already in freelance and self-employed roles or considering this in the future.

Moreover, with the pandemic having shown that many traditionally office-based roles can be done on a virtual basis from anywhere in the world,  it isn’t surprising that many UK-based businesses are increasingly looking at using foreign-based freelancers for many of their projects rather than UK equivalents. By using foreign-based freelancers, UK businesses avoid becoming liable for IR35 and the administrative and NIC costs that this can cause them.

In addition to retaining a tax system which rewards and actively encourages self-employment, the Government should consider what wider steps can be provided to encourage self-employment – e.g., centrally-provided training on the issues and risks associated with self-employment can help those becoming self-employed to prepare fully for the challenges and rewards that freelance work offers.

Would you like to know more?

If you would like to discuss the above or how it may affect you, please get in touch with your usual Blick Rothenberg contact or Robert Salter, using the details to the right.

For any press queries, please contact David Barzilay whose details are to the right.