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New UK PM sets benchmark for self-employed (tax) rights

September 28, 2022 by Self-Employed Australia

truss-albaneseWe’ve been campaigning for more than a decade for major reform to how the ATO treats self-employed small business people. And since 2000 we’ve studied how the UK tax authority (HMRC) treats the UK’s self-employed. Both the ATO and HMRC seem to have been trained at the same bureaucrats’ ‘bully school’. Both defile the ideas and practices of justice and fairness.

But late last week, the new Truss government took a giant leap by repealing tax administration laws that HMRC has been using to bludgeon the UK’s self-employed. The Albanese government should take note.

What drove the UK repeal was a realisation that the UK laws were doing major harm to the UK’s economy. But more, the issue was cancerous for the Conservative Party’s political future.

The UK issue goes back to 2000. The UK tax authority, His Majesty’s Revenue and Customs (HMRC), views all self-employed people as tax dodgers. In 2000, laws were introduced (called ‘IR35’) which enabled HMRC to declare self-employed people to be employees. The trouble is that, invariably, when the courts looked at HMRC’s declarations, HMRC lost. But they kept destroying small businesses.

In 2017 HMRC shifted tactics. Instead of directly attacking self-employed people, additional new rules, called ‘Off Payroll’, required the engaging business to be responsible for deciding if a person was self-employed or an employee.

In 2021 HMRC applied the new Off Payroll rules to the private sector. This is where disaster struck (again). Third-party operators had evolved since 2017 who claimed that they could manage the Off Payroll rules. The public sector, followed by the private sector, forced self-employed contractors to work through these third-party operators. But far too many of these operators ran their own tax-dodging schemes, stole from contractors, and operated outside the UK to avoid UK laws.

In August 2022 the London School of Economics reported that UK self-employed numbers were down by 500,000, and dropping. It said, “The economy is not going to recover until we start treating them (self-employed people) better.”

This message about economic reality was delivered shortly after Boris Johnson had resigned as PM, but it was already resonating throughout the UK. Rishi Sunak was Johnson’s Chancellor. He introduced Off Payroll to the private sector in 2021. When Sunak made his pitch to become Conservative Party leader he was hammered on social media for his trashing of the self-employed. Liz Truss promised to do something about IR35. Truss won the leadership.

What has caught everyone by surprise is that the new Chancellor’s announcement last week is a complete destruction of Off Payroll. This is a massive embarrassment for HMRC but shows the extent to which the Truss government is seeking a total reset. Dumping Off Payroll is a headline part of a substantial package of UK business encouragement reforms aimed primarily at easing regulatory complexity.

What has all this to do with Australia? Business regulation complexity and bureaucratic stupidity grinds down economic growth. The UK’s HMRC has been doing huge harm to the base of the UK economy, self-employed people.  The ATO is doing the same in Australia. At some point we need a government that will seek a fix.

It’s about collecting tax within a framework of legislated fairness and justice. Here’s our model for a solution. (YouTube)

Filed Under: Independent contracting, News Updates, Rule of law, Self-Employed Australia, Self-employment, Tax Reform, Taxation, United Kingdom

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