FSB calls for self-employment 'respect'

The Federation of Small Businesses (FSB) is predicting an unprecedented boom in the number of small firms this year, as high unemployment continues to be an issue.

According to the federation, a record 300,000 people will set up on their own in 2010. It claims that, in addition to helping the economy grow, this will have the knock-on effect of creating new jobs.

However, the FSB is also highlighting a potential pitfall for those who become self-employed if they go out to work for other companies. It says that, while those who 'work from home' - such as plumbers or hairdressers - probably will not be affected, others who spend a period of time contracted to work at another company are being "penalised by the taxman", by being legally treated as an employee and corralled into the PAYE system.

The federation is now calling attention to the current system where self-employed workers must prove their status each year for tax purposes. It is asking the Government to "respect a declaration of self-employment as just that", and has suggested that HM Revenue & Customs (HMRC) verifies individuals' self-employed status within six months, and then accepts that status unless a material change takes place.

According to a recent policy paper by the FSB, people are increasingly turning to self-employment.

However, it says that the annual self-assessment tax return that the self-employed must complete is "lengthy and burdensome". It also claims that individuals' declarations are "regularly questioned and altered by HMRC, who prefer to define them as employees in order to increase their revenue take".

While self-employed contract workers can pay less tax than those who are straightforward employees of companies, self-employment lacks the traditional security associated with permanent employment, such as maternity or paternity allowances and the full range of state pension benefits.

FSB national chairman John Walker said that HMRC should "respect people's wishes to be self-employed", and should "cease their tactics in pushing people into the PAYE net".

"Unemployment continues to be a worry for everyone, and this year we are expecting more people to become their own boss and go it alone by setting up in business, which will both help the economy grow and tackle unemployment as these businesses flourish," he added.

"However, those who do become self-employed need to beware of the tax man, who is penalising these people when they work for other companies, putting them in the PAYE bucket and turning their legal status from self-employed to an employee."

The FSB - which says an Early Day Motion on the issue has been tabled in the House of Commons - adds that allowing people to define their own employment status is set to play a "vital role" in the UK's economic recovery, and will allow small businesses to "lead the way in 21st-century working".

According to the most recent official figures, the number of unemployed people fell slightly in the three months to May, compared to the previous three-month period. However the Office for National Statistics noted that the number of people out of work was 92,000 higher than during the same period in 2009.

IMAGE PA

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