The best thing about 2016 may be that it’s over, but things – all things – seem to matter far more than they did last year. Whatever you’re doing, we need it more now than ever. But we need to be engaged. As we enter 2017, it’s good to reflect on the events of the year just passed. To gauge their impact – in this case, specifically on freelancers – and, most importantly, see what to do next.Here’s 2016 in review.
Everything has changed and nothing has changed. We are a country divided, operating like it’s business as usual. Brexit looms heavily over us, but, until Article 50 is actually enacted, it’s hard to say anything concrete about its effects. As there haven’t been any.However, the prospect of Brexit has already devalued the pound. Which means increased costs for any industry dealing with imports. And an increased cost of living. Is there a plus side to this? Well, now’s a good time to freelance internationally. This time last year, $1 was worth £0.67. Now it’s worth £0.81. Writing a blog for an American company will net you 20.9% more than it would’ve in the pre-Brexit times.And there’s more than plenty to write about. Just as we did after it happened, with our detailed Brexit breakdown.
The Autumn Statement
As Emma Jones, founder of Enterprise Nation, told Forbes on the day of the statement’s release: “it was such a shock to see our Chancellor,” Philip Hammond, “stand today in Parliament and associate the self-employed with avoiding tax.” But associate he did. And his new policies reflect that. Here’s how they’ll affect you:
Do you charge VAT? If not, skip ahead. If you do, you probably use a flat-rate (because no individual has time for all that admin).If you can use the flat-rate, the amount you give back to HMRC is based on your field of work. Previously, a freelance photographer could charge 20% VAT to a customer and would only have to give HMRC 11% of that sale back. Likewise, an architect would charge 20% VAT and pay back 14.5%.However, as announced in the Autumn statement, they’re no longer classed as photographers or architects by HMRC. They’re ‘limited cost traders’ – and will have to return 16.5% of that VAT money.Do you run a limited company? Spend less than 2% of its sales on goods during a tax year? By goods, by the way, we mean… well, the government hasn’t been too specific on what they are. But they have been specific on what they aren’t: food and drink, vehicle stuff (unless, y’know, that is your business) or capital goods (stuff that produces stuff).Essentially, if you buy raw materials for what you do (cement etc) then it’s probably business as usual. But if you charge VAT and provide a service that doesn’t need many materials – be that journalism, or design, or whatever – you will likely now be paying more of your VAT back.Oh, and if you spend less than £1000 on ‘goods’ in a year – even if that is more than 2% of what you earn – you’re still a limited cost trader: you’re still going to be paying that 16.5% rate back to HMRC.
What’s an IR35? It’s a tax law. One that’s been kicking around since the Blair years. It’s meant to catch ‘disguised employment,’ that is: contractors working as companies with a single employee – themselves – who use this set-up to avoid personal taxes.IR35: good idea; terrible execution. Many innocent freelancers get caught in IR35’s net too (and waste expenses on lengthy investigations, IR35 insurance and host of other measures).Normally, it is up to the contractor to work out their IR35 status. But now, if someone freelances for the public sector, it is up to their employer to decide if they are taxed as a business or an individual. Why does this matter? It means legitimate contractors operating as a business may be taxed more than they would otherwise. It means people will be taxed as employees but won’t be afforded employment rights.Research conducted by IPSE claims that over half of government contractors will leave the public sector as a result – and those that remain will charge more to counter the tax increase. At a time when, at least according to one leaked memo, there is already a 30,000 civil service staff shortage to deal with Brexit.As an aside, the government have also decided to abolish the 5% tax break public sector workers get if you are an IR35. Again: taxed like an employee, but with none of the perks.
If you do operate as a limited company, there is one nice little surprise for you: corporation tax should fall from 20% to 17%. But you may have to wait a little, as this won’t come into force till 2020. And, as we’ve seen, a lot can change in one year, let alone three or four.
Do you only freelance a little on the side? You may actually be one of the few freelancers to benefit from the Autumn Statement. Remember when all those eBay traders came under one of the “biggest tax crackdowns in history”? Well, a £1000 tax break was bandied about for a while, to reassure those who only dabble in online selling. Well, it’s now been confirmed. And it extends to anyone, doing anything.Fundamentally: if you’re in full-time employment, you will be given a tax-break on the first £1000 you earn outside of your normal job. Simple.
The Uber ruling
On October 28th this year, Uber drivers were deemed, legally, to be employees of Uber, rather than independent contractors.“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous,” judges said. “Drivers do not and cannot negotiate with passengers … They are offered and accept trips strictly on Uber’s terms.”Bogus self-employment is a major problem in the UK, though not quite the kind Philip Hammond was so concerned about. As Gillian Guy, chief executive of Citizens Advice, put it: “Working for yourself should be an empowering experience not an opportunity for rogue firms to siphon away benefits like sick and holiday pay.”But one person’s merry freelancer might be another’s naive exploitee – and the blurring of the two in the eyes of the law is a concern.The “government must be careful not to dissuade firms from making use of the highly-skilled, on-demand flexible workforce as a whole” said Chris Bryce of IPSE in response to this. The implications of the Uber ruling are still being gauged, but navigating the nuances of this issue will be a key factor in upcoming government employment reviews.
The government reviews
Ah, yes. The many reviews. Seven in total, looking into employment practice. The most recent, announced by the Work and Pensions Select Committee, is an inquiry into ‘Self-employment and the Gig Economy’.Another was announced back in late September, with Prime Minister Theresa May wanting to provide greater protection for the self employed: “Our regulations work well for the majority,” she said, “but we will ensure that no-one is left behind.”What will come of these? Who knows. But expect a flurry of recommendations in the new year. There’s room here to hope. To legitimately hope. And that’s something.
An example from overseas
This year, New York City Council passed the ‘freelance isn’t free’ law. It provides protection for New York freelancers, allowing them, for instance, to take clients to court for late or missing payments.It’s an excellent example of how freelancers can be protected without being shoehorned into systems designed for full-time employees. An excellent example, in fact, for those seven reviews I was just talking about….
A conclusion, of sorts
2016 was a year of great change. You might like some of those changes. Or you might not. Regardless, this year has shown that change is certainly possible.If 2016 didn’t work for you, make sure 2017 does. Use your skills. Get involved. Turn the tools of those you criticise against them. Do you write? Write for a cause you care about. Work in IT? Provide support for a charity’s website. Whatever you do, there will be people doing things you support who need you.Freelance literally means ‘free-lance,’ a medieval mercenary: you don’t go down easily. And I mean… what’s all this compared to cold-pitching anyway?