One-person contracting models face review

A new trading structure for one-person contracting businesses, designed to be simpler than a limited company to set up, run and administer, is being considered ahead of next month’s Budget.

Surfacing last month on the business department’s website, a “review” into whether a new corporate form could be created to cut the red-tape - and cost - of ‘going it alone’ was set as a priority.

But CUK understands there is no formal timetable for the Business, Innovation and Skills (BIS) review, and its officials haven’t been given a deadline, despite their announcement hailing it as a specific objective.

Also signalling that the review, and any change to one-person trading forms, looks more likely ‘post-Budget,’ BIS is yet to meet with a leading compliance adviser who has asked to discuss its details in advance.

However Phil Orford, chief executive of the Forum of Private Business, says its contents will probably reflect a government “seeking to remove sole traders from [their] unlimited liability status”.

He added that simplification to corporate law for the UK’s many smaller firms was “much-needed and long overdue”, at least “in principle.” But it is limited companies, not sole traders, which are being singled out.

“Hundreds of thousands of limited companies”, BIS said “are owned and run by a single person…that person has to comply with extensive rules designed to balance the interests of multiple shareholders and directors.”

Sympathy from the government for small, limited liability and incorporated companies is unusual, according to Crawford Temple, of compliance group Professional Passport.

 “There is a wrong perception that contractors only select to operate through limited companies for tax-motivated reasons,” he said yesterday, reflecting on the group’s previous meetings with BIS officials.

“People seem to have completely forgotten the fact that it was the change to ITEPA back in the 80s that forced contractors to operate through limited companies; prior to this they were all working happily as self-employed.”

Still, the tax treatment of any new trading structure will be central in the review as it will need to be simpler than that of a limited company - if it is prove less burdensome for the user, as the BIS notice intends.

To this end, the tax treatment of limited liability partnerships (who are taxed as self-employed, have no shares but enjoy the protection of limited liability) appears a better model for the BIS to meet its objectives for one-person businesses (‘simplification, lower costs and less red tape’).

“We need enterprise policies geared towards helping all small businesses to thrive”, reflected the FPB’s Mr Orford. “[But] many business owners will be sceptical of the merits of addressing legislative barriers to doing business by introducing even more legislation, fearing this will lead to additional confusion and administration, not less.”

Tim Stovold, a partner at accountancy firm Kingston Smith, added: “Another reason for a new simplified business structure possibly not being popular is that businesses that operate through this entity will be drawing attention to the fact that they are a ‘one-man-band.’ This could cause HM Revenue & Customs to pay them greater attention to ascertain whether they should be complying with IR35”.

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