Supporting Freelancing - PCG ask for tax simplification

8.36.00am GMT Wed 10th Feb 2010

The Professional Contractors Group Ltd which represents freelance workers in the UK have published their manifesto.

According to PCG freelancers represent a significant and growing part of the UK workforce. Their numbers have increased by 14% in a decade to 1.4 million. The freelance way of working is relatively uncommon within Europe, and the competitive advantage afforded the UK by its highly skilled, mobile and flexible freelance workforce "must be nurtured and protected."

They go on to explain that there is no such thing as a "typical freelancer". Freelancers are an extremely diverse group, working across the business world, in fact anyone who is working independently in a knowledge-based industry.

Freelancers:

 Are highly skilled knowledge workers

 Supply services to a range or succession of clients

 Are neither employers nor employees

 Have commercial ("self-employed") relationships with their clients

 Work for a fee

Many different terms are used to describe the freelance workforce, including "freelancer", "independent worker", "contractor", "interim", "portfolio worker", "consultant", "own account worker", and many more.

PCG have a particular gripe with the inability of the Inland Revenue to understand the status of freelance workers, and are asking the political parties to repeal the intermediaries legislation, otherwise known as IR35, as well as those sections of the 2003 Income Tax Act which effectively force small businesses to operate on a corporate basis. They also want to see the back of the proposed 'Family Business Tax', which is an attempt by the government to treat jointly owned businesses differently from normal businesses.

For more see www.pcg.org.uk

Comment - Yes we need to support small businesses generally as they are the most important part of the national economy. We also need to simplify the tax regime at all levels. I suspect PCG have a good case and that if the reforms they request were implemented it would greatly help the economy to move out of recession.

However PCG need to spell out their proposals in much more detail if they want to be successful in lobbying for a better deal in the next parliament. There's a sense in the manifesto document of outrage at current injustices overcoming the need for a cool head when dealing with the Treasury and the Inland Revenue.

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Here's the official Lib Dem response from Lorely Burt MP:

The Liberal Democrats have set out a number of policies that will support the activities of freelancers:

· Taxation: We have established a set of general principles based upon fairness, simplicity, certainty, efficiency, transparency and competitiveness. All Liberal Democrat tax policies will conform to these principles

· Red Tape: we are clear that the burden of red tape needs to be reduced. In particular, we will manage the introduction of new regulations by adopting a 'one in one out' policy, using sunset clauses, introducing independent checks on the costs of regulations and ending the gold-plating of European directives

· Access to government contracts: we would create a level playing field for SMEs by using standardised procurement requests and adopting simple, consistent procedures for approved supplier certification. We support the creation of a single online portfolio detailing opportunities below £20,000 in line with the Glover Report.

In respect of the specific points that you make in your letter:

We agree that IR35 introduces complexity and uncertainty into the tax system for freelancers. In office, we would review the IR35 legislation and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed.

In respect of sections 44-47 of the Income Tax (Earnings and Pensions) Act 2003, we would be keen to consider any distortion caused by this legislation. We believe that individuals should be free to structure their business affairs in the way that best represents the activities they are undertaking, rather than having to create artificial structures to meet complex rules within the tax system.

In respect of the government's 'Income Shifting' proposals, you will be aware that the Liberal Democrats tabled an Early Day Motion in January 2008 raising a number of serious concerns. This Early Day Motion was signed by 186 MPs and contributed to the government's decision to defer the introduction of income shifting rules. If the government returns with detailed proposals to introduce income shifting legislation we will focus on ensuring that the rules are workable and do not introduce significant bureaucracy or uncertainty.

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