They weren’t the only ones making the change. Self-employment has accounted for 45pc of all UK employment growth since the financial crisis, and 4.8m people now work for themselves – 15.1pc of all those in employment.
Being your own boss has both perks and pitfalls.
According to the Office for National Statistics (ONS), the self-employed are paid less, work longer and are on average older than their employee counterparts. But that doesn’t mean they’re unhappy.
Frank has no regrets. “There was a lot of uncertainty, so I decided to become a master of my own destiny. Those I know who own businesses are happier, more secure people.”
Matthew Taylor, chief executive of the Royal Society for the Encouragement of Arts, has been commissioned by the Prime Minister to help the Government draw the line between flexibility, job security and worker rights.
While the review will focus on how policy needs to adapt to new ways of working, Mr Taylor recently suggested that the Government should also focus on tax.
“Some businesses have designed themselves in order to try to make sure people are defined as self-employed because there is a lower tax burden,” he said.
The real question needs to be: are you taking risk and investing in your own business, or are you just investing in your own time? Chris Sanger, EYDavid Kilshaw, a tax partner at EY, describes Taylor’s comments as a “red rag to a bull” as policymakers attempt to shake up an outmoded tax system.
“The tax system can’t keep up because definitions of employment or self-employment still come from the master and servant idea, and technology has completely disrupted that,” he says.
The issue has been highlighted by the Government’s own fiscal watchdog.
The Office for Budget Responsibility (OBR) warned that rising incorporations will leave a £3.5bn-a-year black hole in the Treasury’s coffers by 2021-22 if they continued growing at the same pace relative to employment.
The OBR said the number of companies with one director had “risen rapidly” since 2006 when a legal requirement for companies to have at least two directors was abolished.
Single-director companies now account for 37pc of all incorporated companies, from less than 1pc a decade ago.
It said operating as a company is now an “increasingly common way to structure a business in a number of sectors”, especially in construction, retail, IT, media and professional services.
Those working in the “financial and business” sector now account for the largest share of full-time self-employment, according to the ONS.
The share of self-employed full-time workers in this sector has grown to almost 29pc, up from 23.4pc in 2001, while the share of construction and retail workers has fallen over the same period.
‘Privileged’ sectors have seen bigger rises in self-employment
Research by the Resolution Foundation tells a similar story.
While taxi drivers and courier companies are in the headlines, it points out that the recent rise in self-employment has been led by workers in “privileged” high-skilled, higher-paying sectors such as advertising, which has seen 90pc growth in jobs since 2009, IT consultants, and areas of public policy.
It notes the sector that includes taxis and other “precarious” sectors is up just 7pc since 2009.
Wealthier professions grown most in post-crash self-employment boomThe think-tank says the rise in self-employment has at least partially been driven by the “big tax advantages” now associated with working in this way.
Self-employed workers pay lower national insurance contributions than their employed counterparts, while company owner-managers can take income out of their business in the form of dividends, which are taxed less heavily than wages.
According to Grant Thornton, a person generating £150,000 of income per year, including employer national insurance contributions, would take home pay of £80,204.
As a self employed person, this goes up to £91,137, while a company owner-manager would take home £90,219.
The ability to retain earnings in a company and split income with family members are other ways to drive tax bills down.
HMRC estimates that 30pc of self-employed tax returns understate the amount of tax due.
Gig economy: Does it pay to be self-employed?For Helen Miller, an economist at the Institute for Fiscal Studies (IFS), the argument for equalising the tax system is simple: “Similar individuals doing similar work, and earning similar income, get taxed very differently. I suspect that we all agree that this is unfair.”
The IFS calculates that the tax advantage that comes with self-employment equates to a subsidy of £1,240 per self-employed person per year.
Craig Beaumont, head of external affairs at the Federation of Small Businesses, urges the Government not to “throw the baby out with the bathwater” when making changes.
The tax system can’t keep up because definitions of employment or self-employment still come from the master and servant idea David Kilshaw, EY“Self employment should be about control and managing tax risk yourself”, he says. “Make it simple, but don’t use the gig economy as an excuse to have a massive tax grab.”
Frank also stresses that the tax system should reward risk. “The self-employed should be supported rather than taxed as the economy relies on them.”
The Chancellor said in November that policymakers will “consider how we can ensure that the taxation of different ways of working is fair between different individuals”.
Chris Sanger, head of global tax policy at EY, expects Philip Hammond to launch a green paper at the Budget.
“The real question needs to be: are you taking risk and investing in your own business, or are you just investing in your own time?”, he said.
Getting the balance right
A recent report by the LSE Growth Commission also warned that a world where everyone is their own boss could lead to less training, with consequences for UK living standards.
“In the longer term, the gig economy may erode employers’ incentives to invest in their workers’ skills,” it said.
“It is unlikely that short-term workers will receive extensive on-the-job training, and thus in the long run this may have an impact on the make-up of the skill set of the UK workforce.”
The Government faces another headache next month.
Similar individuals doing similar work, and earning similar income, get taxed very differently Helen Miller, IFSA shake-up of IR35 tax rules, which are designed to weed out disguised employment, mean that from April 1, all self-employed workers will have their income tax and national insurance contributions taxed at source if they are paid by the public sector.
The changes to off-payroll working in the public sector have already led to warnings of a mass exodus of IT workers across the NHS.
Sanger says there is “a lot of concern” about the changes, and expects the Government to take action in the Budget.
“If you are producing another set of rules for people consulting into government rather than consulting into the private sector, you’re going to have a shift away from the services provided to government,” he says.
“Why would you let someone withhold tax when you could control the money yourself? It creates a disincentive for someone to work in government, and the logic seems odd.”
“Policymakers may want to draw breath for once and say: if we’re going to try to reform the system, we may want to just do it once and make sure we get it right.”
When is the budget?Miller admits there will be losers from any major policy reform, but says inaction will be more costly.
“If we keep the current system we will allow the current inequities to persist. That’s another way of saying there are already many losers, and they include most of the workforce.
“Given the trend of individuals working for their own businesses, the longer we wait, the more losers there are going to be.”