Tax & Admin

One-person companies are vital to our economy and should be treated as innocent until proven guilty

Hannah Wilkinson | 14 January 2016 | 8 years ago

One-person companies
Recent policy has vilified a sector of the economy that the government ought to be celebrating
The recent surge in ‘sharing economy? platforms connecting micro businesses with customers has made it easier than ever before for individuals with entrepreneurial ideas to act on them. But instead of celebrating this surge in entrepreneurialism, the government has turned defensive.

A high-level investigation into the UK’s burgeoning digital economy can, on the whole, only be a good thing. When the Department for Business, Innovation & Skills (BIS) launched a digitally-focused committeein September 2015 tasked with looking at how to maximize the opportunities and overcome challenges in the sector, it looked like a nod to the positive influence of disruptive young digital companies.

However, when Business Advice attended a recent meeting of the committee, the ‘sharing economy? was very much in the dock with Airbnb’s EMEA public policy head Patrick Robinson quizzed over issues including food poisoning, health and safety and the risk of moral hazard due to the $1m insurance cover his company provides automatically to everyone who uses the platform to rent out a room.

Not surprisingly, the representatives of more traditional hotel and leisure businesses, who are seeing the sharing economy eat into profits as customers respond to the wider range of options available, have been quick to call for more legislative restrictions on those who provide accommodation through Airbnb.

One piece of red tape that The British Hospitality Association which also gave evidence at the 12 January select committee meeting is calling for involves Airbnb calculating how much tax customers may owe and then forwarding this data on to HMRC.

This isnt something the tax authorities are currently asking for but many of the MPs present at the committee meeting seemed receptive to the idea.

If such a policy were put in place, it would be one in a long line of recent policy changes which form something of a crack-down on self-employed individuals and micro business owners a group that the government seems increasingly to believe cannot be trusted to submit their tax returns without reams of paperwork and additional checks as a reminder that HMRC is watching.

Recently introduced by HMRC, accelerated payment orders mean that the tax authorities can now demand disputed money upfront, putting the onus on freelancers to claim money back if they can prove they never owed it. Plans to introduce requirements for quarterly digital tax returns also seem designed with recalcitrant small businesses in mind with the tax authorities claiming that 6.5bn in additional revenue will flow into their coffers as a result.

Of course, anything that makes it more likely that all businesses large and small will pay the tax owed is a good thing. But this recent spate of policies risk vilifying a sector of the economy that the government ought to be celebrating.

Micro businesses account for a third of private sector employment and some 20 per cent of turnover with sole traders responsible for the largest proportion of the growth of this sector in recent years. And the contribution of freelancers to the exchequer is currently some 21bn a year.

In addition, all the evidence available on self-employment points to the fact that the motivation for entrepreneurs going it alone is not about avoiding tax. In fact, the authors of the most comprehensive recent research on the issue carried out by academics at Swansea University in 2009 suggested that for most, sole trading is not about monetary factors at all but about independence.

An increase in self-employment which the UK economy has seen since the financial crisis shows that many entrepreneurs are also likely to have started their own small firms in order to avoid unemployment yet another reason why the sector should be celebrated by the government rather than demonised.

Large companies like Amazon and Starbucks continue to be trusted on tax issues, even though lots of evidence to the contrary has emerged recently. And HMRC is well equipped to launch investigations into the tax of any specific small firms which it has good reason to think are fraudulent.

But where there is no evidence of wrongdoing, one-person companies should be afforded the same presumption as is applied to other players in the business space innocent until proven guilty.

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