Freelancers’ advisers issue tax pleas ahead of Medium-Term Fiscal Plan

Self-employed sole traders like freelancers have emerged relatively unscathed from new chancellor Jeremy’s Hunt medley of tax policy U-turns on Monday.

Only incorporated freelancers (with limited companies) are hit by the U-turns, which mean IR35 reform repeal, a corporation tax cut, and a dividend tax cut are no longer going ahead.

But that isn’t stopping advisers to freelancers now appealing to Mr Hunt about what they want him to announce that will affect the self-employed, at his Medium Term Fiscal Plan.

'MTD is a big issue for self-employed'

Due on Oct. 31, the plan could be dominated by the chancellor fleshing out his U-turns, on top of details about the National Insurance Contributions increase reversal -- which is going ahead.  

While that reversal by the government under Liz Truss, who yesterday resigned as prime minister, means lower NICs payments by the self-employed, another issue is taxing them.

Or at least, it will tax them shortly -- mentally if not financially, unless Mr Hunt intervenes.

“One of the biggest issues for self-employed people at the moment is the government’s Making Tax Digital legislation,” Roan Lavery, CEO of FreeAgent told FreelanceUK.  

“The first phase of MTD -- MTD for VAT -- has already come into effect, while the next phase -- MTD for Income Tax Self-Assessment - ‘ITSA’- is scheduled for April 2024.

“This will see millions of self-employed people having to use digital software to keep their financial records and make quarterly submissions to HMRC, yet many [sole traders] are still in the dark about what the legislation is.”

'More worrying'

According to the accounting software platform, not even one in 10 small business owners can say they understand “everything” about MTD.

Almost one-third say they don’t understand “anything” about Making Tax Digital, and perhaps “more worryingly,” says Mr Lavery, eight per cent have never heard of MTD.

While low awareness of MTD is clearly an issue, actually, “there are so many concerns” with MTD for ITSA, “it is hard to know where to start,” says LITRG technical officer Meredith McCammond.

“HMRC will not offer its own free software; only a very small number of taxpayers were in the pilot; the £10,000 turnover threshold is too low and many of the technical details aren’t clear,” McCammond told FreelanceUK.

'Another delay to Making Tax Digital would be a relief'

Among those opaque details, is how MTD will interact with Universal Credit, but that’s not the only “substantial change” that self-employed people might need to make in their “day-to-day running of their business,” the Low Incomes Tax Reform Group  (LITRG) warns.

McCammond reflected: “If we saw something on October 31^st about deferring the MTD for ITSA timetable, again, I think we on behalf of unrepresented taxpayers would breathe a huge sigh of relief.”

An MTD deferral isn’t the only appeal that the chancellor is receiving for his Halloween statement.  

'Chancellor should properly support low paid self-employed'

Independent work champion IWORK says it wants to see Mr Hunt unveil “some proper financial support” for the self-employed community’s lowest earners.

“This is particularly necessary as spiralling costs mean many people’s freelance income is insufficient to cover their outgoings. 

"As a result more people are looking for second jobs, side-hustles, or ‘gig economy’ work in order to make ends meet.” 

'Aid for second-jobbers needed'

Chief executive of IWORK, Julia Kermode added: “So I think the chancellor should implement tax breaks to support them so second-jobbers aren't penalised by basic rate deductions.

“And Mr Hunt should also raise the current £1,000 trading allowance so that people can earn more self-employed income before paying tax on it.”