All the key facts you need to understand
As well as the long working days and lack of statutory sick and holiday pay, there’s the incessant pressure of being the boss.
Instead of working in a job with responsibility only for your own performance, now you’re responsible for everything, all the time. Adding up all the hours the average solo entrepreneur puts in every seven days usually means that they’re likely working for less than the national minimum wage.
It can be a precarious livelihood. Research from the Institute of Fiscal Studies, confirms that one in five sole traders will be insolvent within their first year of trading and nearly two thirds – 60% – will fold within five years.
This can be for a variety of reasons. Some small traders will cease trading and go back to being employed in a larger organisation. Others may be so successful that they take on more staff and change their legal status accordingly to a limited company.
The study was conducted between 2014 and 2015 and during this period 650,000 sole trader organisations started up with 580,000 closing down leading to a net growth of 70,000.
Some other interesting facts to emerge from the research include that the sole trader category accounted for the largest employment growth of any sector in the past 15 years rising from 1.4m to 4.1m. Also that since 2007, a third of the growth was from entrepreneurs who were born outside of the UK proving the climate for beginning a new enterprise in this country is generally beneficial.
Jonathan Cribb, senior research economist at the IFS and the report’s author, said: “The growth in self-employment is an important and substantial change in the labour market. We show for the first time how misleading it is to discuss the self-employed as a fixed group – there’s a huge churn in the self-employed population, with hundreds of thousands of people trying a business venture and failing quickly each year.”
It will always be a popular choice with many people wanting to break out for themselves or try something new. Being self employed offers both agency and flexibility and for the time being can offer some significant tax advantages to the savvy sole trader.
However, this could also be disappearing soon, to be swapped with a potential hammer blow to some contractors who work on larger projects while remaining self-employed.
Any sole trader who works within the private sector will have to pay more as the government revealed when it published the details of the draft Finance Bill due to become law in April 2020.
The legislation, to extend IR35 regulations into the private sector is designed to level the playing field between employees and freelancers. The central idea being that two people working side by side in similar roles for the same employer pay the same employment taxes.
The rules have been in place for public sector organisations contracting workers through their own personal service companies (PSC’s) since 2017, and are now being readied for adoption in the private sector.
Sole doesn’t mean alone
Approx. 170,000 self-employed contractors primarily working in the IT and management consultancy industries who perform the same role as a regular employee will have to pay more as the hiring companies now have to determine their status for the first time.
The new “off payroll working” rules are an attempt to crack down on disguised remuneration schemes including the notorious loan charge. The changes also affect medium and large organisations outside of the public sector that engage with individuals through PSC’s as well as recruitment agencies and other intermediaries who supply staff through PSC’s.
Predictably the IT industry especially is up in arms at the idea. Chris Bryce, CEO of the Association of Independent Professionals and the Self-Employed (IPSE) warns that the changes will place additional burdens on organisations that depend on flexible, highly skilled and specialised workers.
He said: “With such short notice, the Treasury has left businesses to choose between access to the skills they desperately need and trying to rush implementation of rules even HMRC itself doesn’t understand.”
If you’re a sole trader who wants to try something different and needs to close your company with a minimum of fuss, or if you are fighting to keep afloat – we can help.
Contact us to speak to one of our expert advisors and arrange a free initial consultation. We can examine your unique situation in detail and decide with you what the most effective course of action would be for you and your business.