Tax, national insurance and pensions. For freelancers, words that can spell regular anxiety attacks. Our time is money, and it’s easy to be too busy to pay much attention when changes are announced in the fusty legal minefield surrounding self-employment. But the government’s focus on, some would say targeting of, freelancers in these important areas means it will pay us to keep up to date.
For a start, many self-employed people face a higher tax bill from April 2020 when the IR35 rule is extended to the private sector.
It will force thousands of contractors and freelancers to pay income tax, as well as National Insurance (NI) at the 12% rate, rather than a lower rate.
HMRC says ‘small’ businesses will be exempt – but has not yet told us what ‘small’ means.
Clearly it will be important to be able to show that, in any given contract for a client, you are genuinely self-employed. Otherwise you will be put straight on the payroll and slapped with a higher NI rate, yet receive none of the benefits and perks due to a real employee.
Your contract is only IR35-proof if:
✔️ you are entirely responsible for your business
✔️ you could hire someone else to do this particular work
✔️ you agree a fixed price for a job, not a time payment
✔️ you will fix problems in your own time and…
✔️ you provide your own tools and equipment.
Quicker down the track comes Making Tax Digital. Anyone above the VAT threshold of £85,000 must, from this April 6, keep digital records and submit returns using compatible software – but only for VAT.
Then, from April 2020, though it could be later, all our income tax self-assessment will have to go digital. That means freelancers have just over a year to prepare for what could be a massive cultural change.
Finally, what about a pension? At present the self-employed are pension Cinderellas, excluded from auto-enrolment into a workplace scheme by an employer who makes a contribution (3% from April). But there is much talk and study afoot about how to do more to get us saving for later life. Watch that space. But meanwhile one valuable option is already in place, the Lifetime Isa. Save up to £4000 a year and get £1000 from the government, as long as you don’t touch it till you’re 60. I’ve got mine…
This was most recently published in IPSE’s “My Money” Magazine as the latest “Ask Iona” column.