The rise of self-employment is no secret. In fact, according to this latest Office for National Statistics report, the number of self-employed professionals in the UK has increased from 3.3 million to 4.8 million across a 16-year period. Self-employed professionals now make up just over 15% of the UK’s labour force, with people from all walks of life and with varying specialisms keen to unlock the flexibility and freedom that comes with being your own boss.
As a specialist in both business accounts and sole trader accounts, we have witnessed the rapid growth of self-employment first-hand. Our accounting services make life easier not just for established companies but start-ups and sole traders looking to get a better handle on their finances. The latest Budget 2018 announcement however means countless self-employed professionals could see their dream jobs turn into nightmares, with changes to private sector contracting rules resulting in higher tax and National Insurance (NI) bills.
The biggest crackdown on the self-employed to date
Self-employed professionals have always been on the radar of HM Revenue & Customs (HMRC). The introduction of IR35 legislation has been the biggest reform to date. With an aim to stop employees from working and reaping the rewards of being self-employed, IR35 rules have affected a vast number of professionals, including IT contractors, engineers and consultants. The new rules however will see an even bigger crackdown on those who claim to be self-employed but actually work in a similar way to an employee of a business.
Self-employed professionals working through their own company to provide services to another business will be under scrutiny. From April 2020, larger businesses within the private sector, such as banks, will also have a responsibility to decide whether new IR35 rules apply to the contractors and other self-employed professionals that they work with.
The impact of working inside IR35 rules
Falling under IR35 rules is something many self-employed professionals are keen to avoid now, and that’s before the new rules announced in the 2018 Budget come into play. One of the perks of being self-employed is that you pay less tax and NI. Self-employed professionals or contractors that are identified as working inside IR35 will have to pay the same income tax and NI as employees at a rate of 12%.
The firms recruiting self-employed professionals and contractors that are actually employees don’t get away scot-free either. Those using such contractors will have to pay NI for the first time too.
If you’re self-employed, don’t worry!
If you’re genuinely self-employed, our advice would be not to worry. The crackdown only affects those who work more as an employed professional than a self-employed one. The Treasury insists that the reforms will not impact those who are genuinely self-employed. The new IR35 rules will also not apply to the smallest 1.5 million British businesses.
Find out more about the new IR35 rules and how they affect you as a self-employed professional by getting in touch with our accounting team today.