The fleecing of the freelancers?

First published on 19 July 2021 by Alastair
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Back in October 2020, the ‘this is money’ website published an article that suggested that thousands of self-employed workers were likely to face tax bills bigger than their total income.  This was because, despite having lost, on average,  a third of their income in the pandemic and with millions also unable to claim a bean from any of the Government's £multi-billion support packages, they were about to face huge bills from the taxman that not only covered their last year's earnings, but also debt deferred from the summer of 2020 and demands from HMRC to pay next year's tax upfront.

In March this year, The Times warned that the Treasury was planning a pay-as-you-go tax model “to crack down on evasion by freelance workers, landlords and wealthy investors.”  The system is based on one in New Zealand and HMRC said it would make it harder for people to hide their earnings.

Fast forward to just last week and the Telegraph has an article that says freelancers will, unequivocably, be worse off under these pay-as-you-go tax plans.  According to new polling carried out by IPSE, the freelancer trade body, the system would result in self-employed workers paying regular monthly tax bills as if they were employees.

IPSE says that some 44% of freelancers only pay tax once a year. However, under the pay-as-you go plan, where they will be required to play tax in advance, based on their profits from the previous year, it is reckoned that nearly 75% would struggle to meet the payments, principally because it would disrupt their cash flow and make it harder to meet unexpected bills.  Freelancers know exactly how easy it is to forget or be unaware of a large cost that suddenly needs to be met, despite the fact that a large majority (75%) put aside cash to meet such eventualities.

As the Telegraph reports, IPSE’s Andrew Chamberlain said the plans were more hassle than they were worth (and) would leave many out of pocket.  He went on,

“The reality is more frequent payments would mean freelancers have to face not just one tax deadline, but four or even 12,” he said. “Many fear the inevitable bumps in the road of freelancing would mean they would miss one and find themselves hit with late payment fines and interest. Overall, there is a sense among the self-employed that more regular tax payments are too much risk and hassle for little to no reward.”

To be fair, the Government has acknowledged these issues but their argument is that the new system will help recover unpaid taxes that otherwise remove income away from public services. Given the huge amounts wasted in some key areas (track and trace anyone?) over the course of the pandemic, while billions have been thrown at everyone apart from Ltd company directors, this may seem a spurious argument to some.  However, the good news is that HMRC is still reviewing its options and no decision has yet been made.  We’ll keep you posted!


Vivian Linstrom, M&S Accountancy & Taxation

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