Contractors make an increasing contribution to the UK economy and so should receive more in the way of government support to reduce the disadvantages they experience, compared with employees. A legal definition should be developed that results in “simplification and clarification with a single definition for tax and employment law”.
These are the conclusions drawn from the recently published Self-Employment Review from the Department for Business, Innovation and Skills (BIS). Led by businesswoman Julie Deane OBE, the review in particular calls for benefits for contractors to be closer aligned with those for employees.
There are now an estimated 4.6m contractors and self-employed individuals in the UK, all of whom will benefit greatly from the implementation of the review’s recommendations, according Director of Policy at the Association of Independent Professionals and the Self Employed (IPSE) Simon McVicker:
“The review is proof that ideas exist to improve the lives of self-employed workers throughout the country. We hope the recommendations will be taken up by the government, as they will change the lives of the nation’s self-employed for the better. It’s important this thriving community has a suitable regulatory environment to grow into, which will only benefit and add to the competitiveness of our economy.”
“Julie Deane’s report is positive for the self-employed and we welcome her recommendations,” adds Freelancer and Contractor Services Association (FCSA) CEO Julia Kermode.
“The vast majority of self-employed people choose to become self-employed and see it as positive choice, so I hope that the government listens to Ms Deane’s recommendations and addresses the concerns she has unveiled by listening to this group of workers.”
Lack of legal definition “causing an issue”
According to Deane: “the lack of a legal definition of self-employment is causing an issue”, and she believes that “simplification and clarification with a single definition for tax and employment law is desired and should be considered”.
The report goes on to state: “The description of ‘self-employed’ applies to farmers, taxi and cab drivers, those running their own businesses, freelancers and contractors. There is no clear understanding of the employment status within many of these groups.”
Deane calls for a single legal definition of self-employment so that there is greater clarity over employment law, and associated rights, as well and delivering greater certainty over tax and National Insurance Contributions (NICs).
Enhanced benefits for the self-employed
Currently, some benefits, such as Statutory Maternity Pay, are only available to employees who satisfy eligibility criteria, which contractors and the self-employed typically don’t satisfy.
The review recommends that the government enhances maternity benefits for the self-employed so they are the same as those enjoyed by employees: “Implementing these recommendations would send a clear statement that government recognises the growing importance of the self-employed and the principles of equality and fairness.”
McVicker adds: “Employment status should never be a barrier when choosing to have children. Reforming the maternity system will bring fairness and clarity to self-employed mothers everywhere.”
The self-employed need specially-developed financial products
“The nature of freelancing means you can’t always be on assignment and be able to set aside a regular amount for your future. You don’t have an employer contributing to your pension, so saving isn’t as straightforward,” McVicker continues.
As is acknowledged in the review, a lack of pension savings poses a problem for the growing contracting sector. When asked, approximately one in five survey respondents reported to have no financial plans for retirement other than relying on the state pension, whilst less than a third claimed to be paying into a pension.
Many contractors and self-employed individuals are making an active choice not to save. The decision not to commit to a pension is often attributed to the volatility of income associated with contracting, with a specifically developed pension fund providing access to cash to cover contract-less periods a popular recommendation amongst contractors.
The report identifies the recommendation made by several bodies that automatic enrolment be extended to contractors and the self-employed, but this has not been well received by survey respondents.
Instead, the review suggests evolving and developing pension products created specifically for contractors, taking into account fluctuations of income whilst allowing for periods where significant withdrawals may be necessary.
Contractor education and online portal amongst further recommendations
As the contracting sector continues to expand, Deane’s review highlights that it is more important than ever to educate and prepare those looking to move into contracting. During the review, many respondents raised concerns around a lack of knowledge regarding finance, cash flow, bookkeeping and taxation.
“These are skills that would benefit many adults regardless of their employment status and yet they are still lacking from our Curriculum,” the report reads.
Accessibility of such support is another issue. Deane recommends the development of a central online portal from which the government can provide contractors with relevant support and services, adding that the government should also consider reviewing how well information on its official site signposts the resources already available to contractors.
The review also flags up the lack of consideration granted to contractors during the development of new legislation. Self-employment is a sector that is overlooked when the government carries out Impact Assessments – a measure taken to determine the impact that new policies will have on different sectors. This is an area which Deane notes requires re-examining.
Government can do more to aid greater public sector engagement
As the review notes: “Supplying goods or services to the public sector is a huge potential market for the self-employed”, yet there are numerous hurdles to engaging with the sector, which spends roughly £230bn per year.
Notably, ensuring compliance with “red tape” was highlighted by 33% as being a particularly time consuming task. Meanwhile, contractors also reported issues with regards to late payment, whilst others had to tender through a third party in order to acquire contracts.
The review concludes: “If government is to meet its manifesto commitment to make sure that 33% of the money it spends goes into small businesses, then it needs to ensure that the self-employed are treated on an equal footing with small, medium and large sized firms.”