A new business model proposed by the Office of Tax Simplification (OTS) could have huge benefits for freelancers who want to protect their personal assets.
A final report on the Sole Enterprise with Protected Asset (SEPA) model, published on Thursday 3rd November, outlined the potential for a model that allows freelancers the liability protection of a limited company while avoiding the complicated tax legislation that comes with it.
SEPA, which was explored in depth after a discussion and a consultation paper earlier this year, also has the potential to make tax administration tasks less painful for self-employed workers.
The basic structure of the new trading option would be that of a sole trader but with liability protection, which will focus on protecting assets of sole traders; primarily their house and pension fund.
In the report a survey was conducted in partnership with Screwfix Ltd, who found that the biggest advantage for sole traders becoming limited companies is the asset protection it offers. The survey also found that “the main hurdle to overcome in becoming a limited company is the perceived volume of paperwork”.
One of the concerns raised in the report was the complication of introducing a new business structure, especially at such a vital time during the transition from self assessment to Making Tax Digital.
OTS confirmed that a new structure would not interfere with HMRC’s digital initiative, as they believe that SEPA would take 3-5 years to introduce, which they say would allow time for Making Tax Digital to be fully integrated into the tax system.
While aimed at freelancers in general, OTS specifically highlighted “traditional traders” and “those in their 40s and 50s who are starting up a new venture” as the perceived audience for the new structure.
The report also speculated that the gig economy could lead to more SEPA candidates in the future as employment status becomes more thoroughly scrutinised over the coming years.
The final report concluded that SEPA “has the potential to be a useful simplification for those that would otherwise consider incorporation”.
The next step is for OTS to develop the report into a proposal that will address issues raised and define the details on the introduction of SEPA.
Do you think you could trade more easily under the SEPA model? Share your thoughts and sole trader experiences in the comment section below!
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