Last year HMRC beefed up the rules where contractors to the public sector were taxed as employees while still suffering the downsides of self-employment. They now want to extend it to all contractors. Many people choose to be contractors because it suits them. They give up the guarantee of a regular wage for the freedom, for the more interesting work, for a little more money and a bit less tax. The tax advantages of contracting through a limited company have dwindled over the years, and now with a dividend tax, the saving is now only a few per cent. But contractors use this saving to cover the benefits that they lose by not being an employee.
We’ve talked about this before buts lets look at some of the disadvantages of being a contractor or self-employed.
Not working – not earning
We only get paid when we’re working, so if we’re not working, we’re not earning.
So that’s no sick pay, no holiday pay, no maternity or paternity pay, no paid compassionate leave and no right to redundancy pay. If you’re employed, then you have a right to all of these.
Discrimination
Quite rightly, we live in a world where it’s illegal to discriminate against an employee based on their sex, age, or race. But if you’re self-employed, there is no protection against this. So if you turn up at a job and the person doesn’t like the colour of your skin or your gender they can disengage you and don’t have to give a reason. There is nothing you can do. It’s not right, but it was still a fact even in 2018.
No minimum wage
When you’re self-employed, there’s no one making sure that you get a fair price. If you’re employed, there’s a minimum hourly rate that you’re entitled to receive – no such protection for the self-employed.
No state benefits
So you can’t find your next contract, or you’re too ill to work after being self-employed, unlucky, no safety net for you.
Retirement
Your retirement plans are entirely down to you. There’s no 2% automatic employer pension contribution – you’ve got to fund it all yourself.
Getting Paid
When you’re employed, you know when you can expect to be paid, but for the self-employed, it can be a lot lumpier. Some clients take ages to pay, and sometimes you don’t ever get paid.
Risk
If you mess up when you’re employed, then the worst that can happen is that you lose your job, but if you work for yourself and get something wrong then swell as losing the job you could be liable for putting things right and/or compensating your customer for their loss. Now, these things are normally covered by insurance [which is an additional cost], but sometimes you get an uninsured loss.
Additional costs
So you have to have insurance if your self employed, which is an additional cost but there are other things too. If you want to pay the right amount of tax then you need an accountant, you need to keep records to a certain standard, so there’s bookkeeping software and possibly a bookkeeper.
So it’s not all one way as HMRC would have us believe, there are ups and downs to being self-employed, and historically the balance has been fair. We think things are moving away from that.
