Late last year I published an analysis of the rapidly declining average declared income of the UK's self-employed people. The trend was profoundly marked in all available data, just as the same data showed considerable increases in the number of self-employed people in recent years.
There are three basic explanations for this trend. One is that those earning anything above modest sums from their own endeavours now incorporates a company to avoid and maybe even evade tax and as a result the average earnings of the remaining self-employed has fallen. This would make sense if average tax paid per small company was increasing, but it isn't. Nor do the trends in the number of trading companies probably justify such a proportionate claim over recent years, although they definitely did a decade ago. I will be publishing more on this soon.
Second, it is possible the self-employed know the risk of being investigated by HMRC is so low their rate of tax under declaration (and HMRC already estimate more than 40% do under declare) has risen significantly. I think there is a significant chance that this is true, but is not enough to explain the trend.
And third, the income of the self-employed may really be falling rapidly. This, I think is the most likely cause, especially given the current supposed rapid increase in the number of self-employed people who should really be placed in the ranks of the despairing who are being incentivised to move off unemployment statistics by declaring themselves to have this status irrespective of actually having any real income to justify it.
This is an illusion that can be played for a while but the one thing these people will not do is pay tax on non-existent income. That is one of the best available explanations for the shortfall in government tax income in January, one of the two months in the year when the self employed pay their taxes (the other is July).
You can manipulate unemployment stats to pretend growth is shared but cash talks. And here it is being loud and clear: these self-employed people are almost certainly no such thing and are struggling in poverty in the absence of any other prospect of any sort of support from a state that officially no longer cares.
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Hello Richard,
Thankyou for highlighting a concern I have felt for a number of years.
Since 2010, the culture has gained pace towards casual and short term contracts in many areas of the workplace.
From shop workers, lorry drivers and warehouse staff to accountants, lawyers and Engineers.
I worked a Transport Engineering manager for a Construction company for over ten years.
When the credit crunch showed no signs of ending any time soon, many companies simply down sized and cut back all “non productive staff”.
Since 2011 I have had no less than six, short term contracts, lasting no longer than six months.
Despite being 46, I have a young family and have found the last four years of “pseudo self employment” a nightmare.
I cannot afford to pay into a pension.
My earnings are irregular and job security is non existent.
I frequently have to travel for hours each day to reach assignment and I have to pay all my expenses and travel up front and wait to get it back.
I do get tax releif on expenses incurred through an Umbrella company.
However, I find myself in the odious position of paying no income tax, only VAT indirectly which I then claim back as my tax free allowance.
Of course, none of these expenses are “extra income” they just result in my paying no income tax, which from a government balance of payments perspective seems rather odd way of doing things.
Jobs are harder to come by for older employees.
The pay rates are modest.
There is no realistic opportunity to take holiday, as much of my work is dead line driven, resulting in my working 14-16 hours per day.
I don’t see my children for weeks on end.
My car is falling apart and my quality of life has reached its lowest point in my lifetime.
I am paid less than £10.00 an hour.
There are many people in my professional network who are running like made and slipping back into debt, marital break up, depression and ill health.
Someone stands to benefit from all this, but I am certain of one thing.
It won’t be anyone amongst the army of self “under employed”.
Reagards,
Drew W.
You have my sympathy
I have friends suffering the same way
The sad thing is, Drew, that this Government is deliberately channelling the discontent that you and many others feel toward benefit claimants and the ill who have become social pariahs over the last few years. The feeling people have is that it is not worth working, to combat this the Government is making it hell for benefit claimants (900,000 sanctions in one year).
You are right that all the profit is going to capital rather than labour when work can be found. The so-called 1% who are syphoning off the wealth want people to be on this terrible treadmill – frazzled, debilitated and numb. I’m sorry it is so hard for you -try to value and enjoy your family life as much as you can. The financial system and big banking with it’s asset /housing bubbles is trying to kill us all of, it seems. There will be a point when people have had enough -it’s sad that this ignorant Government is edging people to this flash point.
I have been following your blog for some time now and sending relevant posts to friends – thank you for your insights…
I have been self-employed in publishing – writing, project managing, editing since 1987 and managed to make a decent living until recently… but in the last 2-4 years it’s been getting more and more difficult – partly because of the number of self-employed people with good skills competing for the same contracts, partly because of reductions in fixed fees, rates, etc. and the fact that it’s not kept pace with inflation in essential items. The sheer numbers of professional, skilled people, mostly made redundant from major companies at times of mergers, drives down remuneration.
I agree….for a great many it is getting very tough
Good luck is all I can say