Spring Statement seen as supporting self-employed

No instant boost to self-employed creatives in yesterday’s Spring Statement 2018 isn’t detracting from the credit the chancellor is getting from supporters of creative freelancers.

The sheer amount of different moves Philip Hammond made to aid the creative or freelance economy in the long-term may explain it, as he took steps on late payment, training and VAT.

Although the latter is the most contentious – some warn a new consultation on the VAT threshold could impose a “nightmare scenario” on freelancers, the other two are outright wins for the self-employed.

On late payment for example, Mr Hammond unveiled a call for evidence on how to eliminate what he called the “continuing scourge” of tiny traders being left unpaid and out-of-pocket.

And on training, the potential gains for freelancers seem even more tangible, as he launched a consultation to extend the tax relief which incorporated businesses get -- to unincorporated, sole trader businesses.

‘Major victory’

Freelancing trade body IPSE, which has single-handedly campaigned for self-employed people to have parity on tax treatment when they want to up-skill, called the consultation a “major victory.”

“Not only is it unjust that self-employed people don’t have the same relief for training as employees; our research has also shown that lack of access to training is also one of the biggest factors holding back struggling, vulnerable self-employed people,” added IPSE’s Chris Bryce.

Open for responses until June, the consultation signals an intention by the government to no longer forbid the self-employed from deducting training costs where the training introduces new skills.

Put another way, under the current system, sole traders can only deduct the cost of training incurred “wholly and exclusively” for their business where it maintains or updates existing skills.

The Institute of Directors responded. “We welcome government’s acknowledgment in the chancellor’s Spring Statement that a broader, simpler, compliance-friendly tax relief to encourage individuals to undertake training which will directly benefit the UK economy is necessary.

“Hopefully, the outcome of the consultation will provide a sufficiently generous but focussed new tax relief”.

David Whiscombe, a tax partner at BKL, says the aim seems to be that the relief will be due “by reference to the character of the training, rather than the structure through which it is provided.”

IPSE’s Mr Bryce reflected: “Extending tax-free training to the self-employed is…something for the wider self-employed community to celebrate.”

‘Serious cash-flow problems’

But he implied there would be no cheering at the Association of Independent Professionals and the Self-Employed (IPSE), in response to the chancellor announcing a call to evidence on VAT.

In particular, Spring Statement says the focus will be on whether the design of the VAT threshold could better incentivise growth. And it is lowering it which IPSE is dead against.

“If this did ultimately lead to a drop in the VAT threshold, it would cause serious cash-flow problems for many self-employed people,” the association said, deeming it a “nightmare scenario”.

It added: “They would quickly face the stark choice of either raising their prices – causing them to lose customers – or absorbing the cost themselves, which would do significant damage to their businesses.”

Tax body the ATT agrees, cautioning. “[We hope this call for evidence] will make the Treasury aware that the negative impacts on small businesses of simply reducing the VAT threshold will be exaggerated by the imminent introduction of digital record-keeping and reporting requirements, and Brexit.”

‘Not clear’

However BKL’s David Whiscombe points out that there is some sound reasoning behind the evidence-call.

“[It’s necessary because] it’s not clear how commonly…. [small businesses] are at the moment turning away potentially profitable work in order to avoid the need to get involved with VAT registration,” he said.

Making VAT rules less complex, “easier to apply, in the expectation that it should lead to less uncertainty among business, and fewer disputes with HMRC,” would also all be welcome, achievable results of the evidence call, the Chartered Institute of Taxation says.

 “There is a strong case for some kind of smoothing mechanism to reduce the financial and administration impacts of the [VAT] threshold,” the institute added.

“It is crucial that any such mechanisms are simple for business people to understand and operate. There may also be a case for refreshing or extending the VAT Flat Rate Scheme.”

‘Help or hinder’

Go Simple, an online accounting platform, sounds glad that the broad issue of the Value Added Tax threshold is to be scrutinised. Although it has reservations as well.

“How this will eventually affect contractors remains to be seen,” said Go Simple’s director Amanda Swales, who directed freelancers to complete the Treasury’s 7-minute online survey  

“Any moves to simplify VAT collection and submission will be welcomed by those earning over £85,000, although Making Tax Digital -- which comes into force for VAT from 2019 -- is supposed to be addressing this already.

“As such, we’ll have to keep a close eye on this consultation to see whether the recommendations that come out of it help or hinder independent professionals”.

Another online accounting solution, FreeAgent, said potential changes as a result of the consultation could afford businesses a longer period after their turnover turns eligible for VAT registration.

They could also benefit by having a simplified VAT accounting procedure, for a certain level above the threshold -- which is currently not scheduled to change for two years from April 1st 2018.

‘In the coming months’

By that date, freelancers may know more details about another of the chancellor’s consultations; albeit one which he declined to cite yesterday despite promising it back in November 2017.

In fact, the ‘off-payroll working’ consultation which Autumn Budget said would look at extending April 2017’s IR35 changes in the public sector to the private sector, received not even a single mention in Spring Statement 2018.

It fell to a Treasury spokesperson to explain to FreelanceUK that a new web page on the Parliament UK website confirms that the consultation will be unveiled “in the coming months”. It’s a detail many will likely find helpful.

‘Complacency’

Status adviser Kate Cottrell said yesterday: “The fact that the [IR35] consultation has not been published today is incredibly frustrating, not least because we could then get a better idea of timescales if they do decide to roll this out to the private sector.”

She added that for prudence, freelancers who operate via their own limited company to supply a commercial outfit should raise the possibility of the extension with their client – the end-user.

“There is absolutely no room for complacency”, Cottrell warned. “Anything is of course possible and in the meantime everyone potentially affected needs to take some action now…to understand what it means for them”.

‘Brexit fallout on freelancers’

Other Spring Statement 2018 announcements with the potential to impact the freelance and/or creative economy include:

  • A consultation to explore how online platforms could work with HMRC and taxpayers to help people who make money through the platforms understand and meet their tax obligations.
  • A call for evidence on the role of cash and payments in the digital economy, including seeking ideas on how the government can support digital payments.
  • The second publication of a ‘position paper’ outlining how corporation tax rules can keep pace with modern corporations in the digital economy.

There was also an announcement by the chancellor on the UK’s exit from the EU – specifically that £1.5bn in Brexit preparation funding has now been published.

But it’s not the sort of announcement on Brexit that FreeAgent’s boss Ed Molyneux, a former freelancer, had in mind.

He said: “I would have liked to hear the chancellor provide some detail about how freelancers and micro-businesses can be protected from any negative economic fallout from Brexit.”

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