Over the past few years, there appears to be a concerted attack by HMRC on those who are self-employed. This continued in the pre-election Budget, when Philip Hammond announced the lowering of the dividend zero-rate tax band and increases in Class 4 national insurance. It is heartening to note that the NIC increase was put on hold pending further consultation on self-employment in autumn 2017.

It seems clear that the definition of self-employment, as far as HMRC are concerned, has been widened recently to include:

  • Sole traders
  • Partners/members in partnerships and limited liability partnerships
  • Single member/director limited companies

It would also appear that HMRC feels the only reason someone would opt for one of the options above is to obtain a tax advantage. While to some extent the tax system has provided a benefit to those striving out on their own account, this is a rather simplistic view of what is actually happening.

There are actually a number of reasons why someone becomes self-employed, but tax is not normally the key driver.

Sometimes the person or company engaging them has made it a condition of getting the work that they must provide services through a personal service company. For other people, it's a personal lifestyle choice. They like fitting work around other responsibilities, which is something an employer may not be able or willing to accommodate.

Of course, it may be that self-employment is simply normal for the sector in which you work. Partners in accountancy practices would be a good example!

Although there are some small tax benefits, they are being reduced and do they outweigh the fact that self-employed people have no employment rights, no paid holidays, no sickness pay and - until recently - lower state pension entitlements.

With changes seemingly on the way - and increasing debate about these issues - it will be interesting to see how the law, and the attitude of HMRC, changes in the months and years ahead.

This blog has been written by David Powell, Managing Partner at Booth Ainsworth. If you have any questions regarding this subject please contact David via email or 0161 475 1550.