Reasons to be cheerful!

Following this week’s budget, the nation’s small business owners and self-employed professionals could be forgiven for thinking that the Government is not interested in helping them get on and deliver the crucial part they play in creating an entrepreneurial, flexible, innovative, skilled, wealth-creating and jobs-generating economy.

However, it is worth looking at this in the context of other announcements and recent developments.  Whilst dividend tax changes could in no way be described as a reward for the hard work and risk taken by self-employed professionals, entrepreneurs and family businesses, and may lead to modest increases in the tax bill for some of them, this should be seen in the context of the steeply reducing corporation tax rate in recent years and the continuing reductions that are now scheduled from 2017 onward.

These tax rates continue to make trading through a limited company extremely flexible and tax-efficient, certainly far more so than via traditional employment and PAYE tax, thereby rewarding the additional risk taken by the self-employed and entrepreneurs.

Yes, the Employment Allowance is no longer available for one-person businesses, but this is not a benefit that has been around for very long anyway, only since April 2014, and it’s impact on the finances of these individuals was minimal at best (less than £300 a year), so should not be seen as a huge degradation in the fortunes of freelancers working via limited companies.

Reductions in corporation tax, increases in the tax free allowance and the higher rate threshold and an increase in the annual investment allowance are all positive for the small business or self-employed professional.

The Government has also recently commissioned entrepreneur Julie Deane (founder of global brand The Cambridge Satchel Company) to perform an independent review of self employment in the UK, focussing on:

  • why people opt to be self-employed as well as the different types of work that they carry out, including freelancing professionals, sole traders and those who are employed but also work for themselves
  • the challenges and issues faced by people who are self-employed, especially when setting up or developing their business
  • how the UK can create a more flexible and supportive environment

Self-employment in the UK accounts for over a quarter of the growth in employment since 2010. According to ONS figures, one in seven people in employment choose to work for themselves, making a total of 4.5m.

Deane said, “The business landscape has changed so much in the last 10 years and in such a way that self-employment is now a viable option for so many more people. I have first-hand experience of the immense opportunities starting your own business can bring, but also understand the challenges that can face those starting out on their own.

David Cameron said the review would “shine a light on self-employment, a key part of our long-term economic plan, looking at what can be done to provide more security and peace of mind for people wanting to work for themselves”.

In our opinion, there has been far too much negativity in terms of the reaction to the budget.  There needs to be time taken to ‘wait and see’ and evaluate the conclusions of forthcoming reviews, such as that being undertaken by Julie Deane and of IR35 legislation – these may well yield benefit for genuine self-employed freelancers and professionals.

In the meantime, starting a small business or operating as a self-employed, freelance professional through a limited company, remain hugely tax-efficient and certainly considerably more so than the alternatives, thanks to the tax regime already in place and largely unaffected by the Summer 2015 budget.

Working independently, particularly given the skills shortages in many of the key areas where self-employment is most prevalent, will continue to offer both very high rewards (in terms of day-rate remuneration) as well as all the benefits of flexibility, variety and autonomy associated with running your own business.

In our opinion, in terms of the fundamentals – a growing economy, increasing opportunities, strong demand and high pay rates – the future remains bright for small business start-ups and freelance professionals. There should be no need to get too lost in the small print or get too negative about.

 

 

 

 

 

Posted by John Hoskin