Government tax clampdown drives decline in startup formations
A government clampdown on ?disguised employment? in the public sector was the dominant contributor to a 10.5 per cent fall in startup formations in 2017, according to new analysis. Fresh data from Companies House, examined by The Centre for Entrepreneurs (CFE), showed that 589,008 new businesses were registered in 2017 ? a 10.5 per cent drop on the 657,790 founded in 2016. According to CFE, the decline can chiefly be attributed to the government?s clampdown on ?disguised employment? among public sector workers. In April 2017, reforms to IR35 legislation were introduced to tackle tax avoidance by freelancers and contractors working in the public sector. HMRC was concerned that contractors were abusing the ?corporate? structure of agencies by resigning from their jobs, and returning soon after as a contracted worker with favourable tax and NIC rates. Read more: What is IR35 and how does it affect you as a business owner? Breaking down the data, CFE found that IR35 had its greatest impact in Wiltshire, where 7,475 new businesses were registered to an accounting firm that provides payroll solutions to contractors in 2016. After IR35 reforms in 2017, just 458 new firms were registered to this address. New business registrations also fell in areas where contractor accounting firms had outnumbered other ventures in recent years, such as Wellingborough, Lichfield and East Hertfordshire. CFE’s interactive map demonstrates a national overview of startup formations in 2017?
Commenting on the findings, Matt Smith, CFE director, said the data represented a ?welcome re-adjustment? to business formation figures, which had been ?distorted? by contractor accounting firms outnumbering traditional startups. ?The company formation statistics now give far more accurate insight into the state of entrepreneurship nationwide,? Smith added. However, a generally muted encouragement of entrepreneurship by government was also attributed to the drop in new business registrations. CFE claimed a cumulative impact of business rates revaluation and other regulatory burdens had discouraged individuals from pursuing business ideas. ?With business registrations increasing for nearly a decade it is not surprising to see the record streak come to an end? Smith noted. ?While the tax clampdown is responsible for most of the drop, there is evidence that formations have fallen more than expected. To boost startup figures, the government must return to championing entrepreneurship and supporting entrepreneurs, as it did so well under David Cameron.” __________________________________________________________________________________ The ten best startup ideas for under ?10,000 you can launch todayTo help kick-start a wave of entrepreneurial activity, we?ve brought together the best startup ideas under ?10,000 that could represent a viable business opportunity at a realistic investment. __________________________________________________________________________________
Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.
The Treasury has strongly hinted that IR35 rules governing how freelancers and contractors are taxed could soon be extended and rolled out to the private sector. It?s more than unsettling, writes Julia Kermode, chief executive of The Freelancer & Contractor Services Association. more»