A new report from Labour Business is highly critical of the Government’s taxing of freelancers through the off-payroll regulations. The report has called for significant reforms to the way that the self-employed are taxed and how it is governed and overseen.

The report recommends that HMRC is made a Ministerial department and the formal appointment of a Minister for HMRC

The report calls for Labour to seize the initiative on self-employment and create modernised and effective way of managing them.

Background

Philip Ross, chair of the Labour Business Policy Group on Self-employment, who was commissioned to write the report, says:

“Labour Business recognises the value and contribution that freelancers and independent professionals make to our economy. We want some common-sense proposals which aren’t just about squeezing out taxes but are about making self-employment sustainable and prosperous so that it benefits those engaged in the model, the clients that use it, and our economy as a whole”.

This report aims to build on our previous report – ‘The Freelancing Agenda’ – and looks at the mess that we are in with IR35 and draws out a set of recommendations some strategic and some tactical that allow to have clear and open debate about tax and the self-employed so we can have a thriving and prosperous economy that is fair to its self-employed workers and benefits from them.

Philip Ross adds:

“Engagement of a contingent workforce can be complicated. It’s a bit like people staying in a hotel: some may have booked direct others through a travel agent, others via an internet broker and others as part of a holiday charter. All are guests staying at the hotel, and all are equal, but have booked under different terms.

“For a project you can have direct employees, interim employees, staff from a consultancy who work for the consultancy, staff from a consultancy who are contractors, contractors direct to the client and contractors to the client via an agency. The problem for contractors is that too often they are being compared against employees whereas they also deserve comparison against other suppliers.”

On employment rights and taxation, the report says:

“The Labour movement should work to ensure that anyone taxed as an employee has comparable rights of an employee. Without a doubt this is the trajectory that the economy is currently on.

“But in the long term, damaging our flexible market for freelancers – particularly in the professional sectors – will not help the economy, and we doubt that it will result in an increase in tax. But it will make the proposition of being self-employed to workers less than appealing. The economy will lose its flexibility, overall our productivity would reduce further, and workers would lose the freedom that comes with self-employment. Importantly, we would also be snuffing out any entrepreneurial spirit. “

Download the PDF file .

Publication and Fringe event

The report, published on Friday 20th September 2019, will be followed by a special fringe event launch at the Labour conference. It aims to construct a policy framework by building a strong debate around the self-employed and focusing on right and taxation.

Our aim is to kick start a proper and informed debate to help Labour build a new economy that recognises and levers the power of the freelancers and the self employed to deliver prosperity”.

“I know it has radical elements,” Philip Ross says, “but the voices of freelancers and the self-employed need to be heard and the report sets out to empower them and enable a future Labour government to deliver for them”. Says Philip

Summary of Recommendations:

We conclude that:

  • Implementation of IR35 was not as successful in the public sector as HMRC suggests
  • The private sector is not ready for an April 2020 implementation
  • Issues of liability for taxes are not clear, clients do not want the liability and neither do agencies.
  • Supply-lines of labour are far more complicated than envisaged by HMRC
  • Changes to IR35 will impact more than tax, they will impact prosperity and flexibility in the economy
  • Changes to IR35 suggest that some supplier roles cannot be done by an independent worker, but only by someone from a third-party consultancy
  • HMRC needs to be more accountable and transparent.

We recognise:

  • the issues of compliance and the need to collect taxes from the self-employed
  • that much of the problem is with freelancers using a limited company
  • that there is not enough case law around self-employment and it is certainly not keeping up with changes to the employment and business market
  • that employment rights and tax status need to be aligned.

We propose that a Labour Government should:

  1. Introduce a new business model for freelancers – a: Freelancers’ Limited Company (FLC) – and amend guidance on IR35 to take into account its use
  2. Revise guidelines on key tenets of self-employment by industry sector; such as substitution, MOO and others.
  • License use of a FLC by industry sectors allowing third parties like Trade Unions and Trade Associations to be accrediting organisations
  1. Define a 4-year window for review of freelancing policy and use of the FLC, reviewing effectiveness around the issues of tax revenue, flexibility and prosperity, adding employment rights. These should be considered on sectorial basis.
  2. Make HMRC a Ministerial department and formally appoint a Minister for HMRC
  3. Suspend new IR35 roll-out to the private and public sectors, keep liability with the freelancer. Only move forward when considering results of Taylor review.
  • Retain the IR35 forum, but with an independent chair
  • Revise the CEST tool for establishing employment status by sector. The CEST tool should use agreed precedents and cases and rules which are to be agreed by the IR35 Forum as a governing body.

 

We need to review the role of umbrella and payroll companies for employment rights and tax purposes and as vehicles that create bogus or forced self-employment. We should also encourage use of co-operative models.

 

For more information, contact freelancing@labourbusiness.org.

Taxation of the Self-Employed
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