Self-employment is booming in Scotland. Newly-published statistics show that 322,900 Scots worked for themselves last year, one of the highest numbers ever recorded. The figures from the Scottish Government also show that women are increasingly deciding to be their own boss, making up a third of the self-employed workforce today (compared to 26.8 per cent in 2004).
And freelance earnings in Scotland are up 29 per cent since 2001, a pay rise beaten only in London and East England, according to the Office for National Statistics.
But there may be problems ahead. The UK government is cracking down on bogus self-employment and the use of independent companies for tax avoidance, with tough rules already introduced for contractors in the public sector.
Now, the government wants to extend the regime to the private sector, announcing a consultation earlier this month. But organisations warn it will financially harm genuine freelancers and prove impossible to enforce.
Freelancers currently pay lower national insurance than full-time employees and can use a so-called “personal service company” (PSC) to reduce taxes even further. Companies can also game the system by treating contractors as self-employed, which reduces their own national insurance liabilities.
Rules introduced in 2000, known as IR35, were meant to ensure that contractors pay broadly the same tax as full-time employees. But 90 per cent of firms flout the law, according to the Treasury.
Last April, the government began its clampdown by shifting liability onto public sector organisations to determine their contractors’ status and deduct the appropriate taxes. Thousands of temporary workers were hit with higher tax bills, forcing them to raise prices or quit sectors like the NHS.
HMRC also embarked on a number of high-profile tax investigations into BBC presenters, some of whom been ordered to pay back six figure sums after receiving their pay as freelancers through PSCs.
A High Court judge is currently deliberately over an appeal made by three BBC News presenters over their combined tax bill worth £300,000, with allegations made in court that the BBC forced presenters to set up PSCs or face a pay cut.
The BBC has denied coercing workers into using PSCs and insists that it complied with the law. But the case highlights HMRC’s determination to crack down on off-payroll working.