How Osborne can help the UK's one-man bands
A rule of thumb that we’ve long been saying should apply to the tax system – that it must be simple enough for a business owner to understand and therefore police themselves – is what this month’s Autumn Statement would ideally contain, writes Ian Cass, managing director of the Forum of Private Business.
Simplify, improve, reform
Just look at the seminal book on the UK tax system, Tolley’s. It now stands at an imposing and almost unfathomable 11,000 pages. That’s too long even for accountants craving some bedtime reading to master! It’s no surprise, therefore, that we support a number of initiatives from the Office of Tax Simplification.
We also support the very latest tax simplification suggestions affecting freelance contractors, notably those pertaining to IR35. The approach to the Intermediaries legislation put forward last month by the Chartered Institute of Taxation, for example, can only be an improvement on the current system. So although our members are a little concerned about taking responsibility for any penalties that HMRC may impose under the CIOT’s proposal, we agree that, in its present form, IR35, is simply far too subjective to stay as it is.
But some freelance consultancies seem equally concerned about their reduced rates recently, higher costs and, as a result, their lower take-home-pay. It’s important that freelance workers should not be considered as cheap labour, and this may be a challenge for the chancellor, particularly in light of small businesses having to pay for staff pensions and, soon, national living wages.
Another obstacle for George Osborne to potentially tackle on November 25th is the ‘outdatedness’ of the tax system which, along with its overly complicated nature, allows Google and other giants to regularly underline how unfit for the 21st century the system really is. This underlining has not gone unnoticed by the public.
But problematically, the focus of HMRC is on revenue-gathering as one of its three strategic objectives. This is a concern at this time of globalisation because well lawyered-up corporations are using the tax system’s complexity for their own advantage. At the other end of the business spectrum, tiny contractor companies who may be considered by HMRC as being in ‘disguised employment’ cannot do the same. Indeed, small traders in general feel that they are ‘soft targets’ for this highly effective revenue-gathering as they do not have the resources to stand up to HMRC.
Care in the (business and freelancer) community?
We have had mixed messages out of the tax authority as to how it treats its “customers” (a different word would likely be suggested by those who have been subjected to a tax investigation), but it is fair to say that, generally, business owners will be regarded with suspicion. This is why our organisation and our members are so concerned about the new dividend tax– not because it means that businesses have to spend more on tax planning as a result, but because the Treasury sees it as a plug to stop a tax avoidance gap.
Fixing the perceptions of the business community from inside Whitehall is perhaps too much to ask of a single Autumn Statement. But the chancellor could do more to ensure government – and HMRC especially – support business owners rather than distrust or threaten their existence. Some reassurance from Mr Osborne that this is happening wouldn’t go amiss – nor would better customer care from officialdom when dealing with traders. For example, even resource-conscious one-man bands offer their clients a range of billing and payment options, yet HMRC is still focussed on forcing every business to use its digital portal.
And if the government does want to show a bit of care towards the independent business community on November 25th, then real powers for the Small Business Commissioner are needed if large multinationals are to take this late payment ‘tsar’ seriously. As to the existing small business-friendly framework, we’d advocate the government getting all its ducks in a row. In fact, a close second behind our main wish for Autumn Statement 2015 to contain tax simplifications is for joined-up thinking from state and enforcement agencies. What good is the deregulation drive of the department of Business, Innovation and Skills if a business owner has to spend that time not dealing with risk assessments but instead dealing with taxation forms?
Put the ‘free’ back into ‘freelance’
though, our members want simplicity – people don’t set up a business because
they like filling in tax forms or fields; they do so because they like the freedom
of being their own boss and the freedom to provide their clients with the
best possible service. An Autumn Statement in 22 days’ time that gives some of
that freedom back to enterprise in the form of simplifying the way they do
business would be welcome for all traders, regardless of their sector or size.
2nd November 2015