Micro Entrepreneur Tax Breaks
In George Osbourne's last Budget, he introduced a new tax break for the digital economy. Now is the time to take a look at this and what it might mean...
Micro Entrepreneurs and the New Tax Breaks
There will be a new tax break of £1,000 of income for micro-entrepreneurs earning from the new "sharing" economy.
This probably started as a suggestion to remove a large number of minor eBay traders from needing to complete an income tax return for £2.25. The cost to process these forms would be comparable to the revenue and so it is more efficient for everyone not to bother.
Whilst the details of this tax break have yet to filter through, the signal it sends to the new business models is very clear - everybody get disrupting! Will this have the effects that the Chancellor expects?
Fast Forward 5 Years
Dave started his AirBnB business just after the new UK tax regime became law. There had been news articles and documentaries about people giving up their jobs and becoming overnight millionaires only working twelve minutes per day. He had made a some money from the Bed and Breakfasts, but, five years on, he was still a long way from the digital dream and writing his letter of resignation. As a hobby that paid him, he enjoyed it, he liked cooking, he had a spare room and he met some interesting characters.
Tom and Barbara have been running the eBay good life for at least ten years. At first, the new tax break seemed great - they were getting money back from the tax man! When they gave up their jobs to concentrate on building the eBay business, they had gone "legit" as they would not be able to explain their income.
However, since the announcement, everyone was starting their own online business. The competition had ramped up, but these were evening eBayers just earning a few extra quid, not having to make this month's mortgage. They flooded the market at margins that could not be sustained. It looked likely that they would need to go back to full time employment and make the eBay a sideline - just like everyone else.
After doing the school run, Laura checked her emails. Yesterday's campaign went well, she had sold her entire consignment! Now her twin boys were at school full time, she would be able to spend more time running her business and the extra time available was paying off. She had started the business on maternity leave from her marketing job. Although it did not pay anywhere near her full time salary, it did allow her to take time off after the maternity leave to look after her baby sons - having twins was certainly double trouble!
Alex, HR director of a large office based company, was reviewing a report on the company's car pooling scheme. Using a new web based application, employees driving to work can offer lifts to other employees for a contribution towards their petrol and maintenance. On the face of it, this seemed like a great scheme - spaces were freed up in the overburdened car park, car drivers in the scheme got some compensation, passengers saved on train fares. However, one or two drivers bought larger cars and decided to become Uber drivers at the weekend. Now these drivers were taking more sick leave than before, perhaps to fund their new cars? Was the reduction in car parking demand worth the change in a handful of employee's behavior?
Chris started her own software development company three years ago. From the start, Chris had encouraged her engaged and media savvy staff to join the company's affiliate scheme - including the sales team. Each employee could earn from new customers downloading their mobile apps. Not only had she turned her entire team into ambassadors, her employees had a stream of income with its own separate tax allowance - the equivalent of a free pay rise.
Each staff member was allowed an organized half hour slot each day when they could utilize social media, build web sites and write articles. As the company was very small and had a "family" feel the policy worked well with few rules. Chris wondered if that would change as they grew.
Two staff had left Chris's company and had asked if they could stay on the scheme. Chris had agreed readily - after all the affiliate scheme was generally available to members of the public and that included ex-staff members.
Micro Entrepreneur Tax Breaks - A Good Idea?
I think this policy will work well in the short term. There may need to be some revisions of the legislation if the tax break gets used for tax avoidance or has more side effects than were originally anticipated, but it will encourage a new way of thinking, which could benefit all.