Self-employed are facing a tax maze
Self-employed people face a confusing self-assessment tax process, says Brian McGuire of Assocation of Chartered Certified Accountants
The latest Office of National Statistics (ONS) figures show that the number of self-employed has grown to 4.2m, with one in three new jobs since 2010 being a self-employed role.
The new self-employed face a complicated, self-assessment tax regime and new changes to the Child Benefit system will mean many more people will self-assess.
Taxpayers also need to make sure they were aware of new general anti-abuse rules (GAAR) when they come into force later this year to check they are not affected by the new rules.
The once famous mantra that tax doesn't have to be taxing holds no weight now for the growing number of self-employed people across the UK. The tax system should be as simple and consistent as possible, especially when you are trying to get your business up and running, which is often the case for many self-employed people.
It is easily forgotten that the self-assessment regime amounts to taxpayers doing the Government's tax collecting work for free, but if it is wrong or late they can be penalised.
The rise in those who are self-employed is good news, but the reality is that those who have turned to freelance work to escape unemployment and those who have decided to work for themselves face a challenging tax maze that could land them in hot water should they get it wrong.
The complicated nature of the UK tax system means that the self-employed are beginning to experience the same tax challenges small to medium-sized enterprises currently face. Globally, SMEs spend on average 36 working days a year ensuring they meet tax regulations.
More people are set to self-assess with the changes to the Child Benefit, which HMRC estimates will mean some 500,000 parents having to complete the self-assessment tax form each year in order to pay the higher rate charge. The system has been designed so that more tax is paid to cancel out or reduce the gain from Child Benefit.
The higher number of self-employed and families who are looking to self-assess means that there are a lot of first-timers entering this confusing process. No tax system should be a hindrance to businesses or families, but the self-assessment process is far from straightforward.