VAT threshold - impacts on freelancer co-operation?

@harryrobbins I agree it doesn't seem right that self employed labour should be within the scope of VAT but a sole trader/self employed person is, in the eyes of the taxman, and companies house/FCA treated as a business providing a service to the client on behalf of the co-op. Unless they invoice directly in which case they are providing the service to the client. If a member invoices a co-op and has to keep accounts they are a contractor not an employee. The person may see themselves as a "worker" but the fact is they are a business. A consortium of self employed people is no different than a consortium of small businesses except in scale. Not my rules and I don't like them, just saying how it is.

I agree they are currently treated that way, but I believe a good response to the government's consultation would be to suggest a bold alternative.

While legally an LLP, for example, can be made up of natural people or other companies, it would be easy to distinguish in law between a person and a company.

I'm all for bold alternatives, but I'm not clear in this case what that might be?

My proposal is that the VAT threshold for worker co-ops should be equal to the number of natural members (people) multiplied by the current VAT threshold. The justification is that it's moving lots of sole traders into collective work and increasing productivity/economies of scale. The logical reason is that worker co-ops are not 'adding value' they are creating it.

Sorry - I've complicated matters. To me a freelancer co-op is a form of worker co-op where the contract is one of self employment, or zero-hours contracts. To me a consortium co-op made up of non-natural persons (e.g. one made of companies) is not relevant here, as there is no justification for consortia of companies being excluded from VAT.

My clearest example is probably of a self-employed plumber, carpenter, bricklayer and electrician who would like to start a worker co-op building contractor to renovate people's houses, but who are currently prevented by the VAT threshold.

Wikipedia descibes VAT as "based on the increase in value of a product or service at each stage of production or distribution" and since the labour is being created it does not have an increase in value. Bricklayers do not make their money by marking up bricks.

It should be noted that my imaginary building company would not get the 20% savings on their bricks, sand, paint, etc. but it's a tiny part of their business and they're basically reselling the materials at cost anyway.

If such a tax break were in place we would very quickly see a massive growth in fake worker co-ops. In terms of the bricklayer, my guess is that HMRC sees her as adding value to the brick by taking it from a relatively low value pile of bricks to a high value element of a building.

What would a fake worker co-op look like? If the articles said 'one member, one vote' then 'fake' worker co-ops would be very vulnerable to takeover by their workers. Bring it on, I say.

As a tech worker I don't actually have any bricks. It's hard to argue that I'm reselling electricity at a high price, or whatever.

Given the lack of clarity in English law about what a co-operative is, and the multitude of legal forms that can be used to create a worker co-op, I think the chances for obfuscation and creation of fake worker co-ops are pretty high. The co-operative movement already lacks teeth to defend it's hard won ethical credentials. Offering financial incentives creates a problem that we are not equipped to deal with. A fake worker co-op could easily look like an LLP, where the public-facing documentation is almost non-existent, and all the details of governance etc are hidden in the private partnership agreement.

On the spurious point about creating value somehow differing from adding value, well it's just that, spurious.

Fake worker co-operative? Easy to set up under at least four legal forms which don't bother at all about co-op principles. So set the fake co-op up with co-op rules but with me and my partner as the members (and a mate if the tax rules say there have to be three members).

It's been done before, although not with co-ops. A decade ago, the government was chucking money at social enterprises. But the grant regimes required there to be at least three members to get the grants. Lots of people set up 'social enterprises' which were basically themselves plus two people (usually a partner, a family member or a mate) to act as 'Directors'. Then applied for and got grants.

If three people work together on a business and run it democratically (and in keeping with other co-op principles), I think they're a worker co-op even if they are related to one another.

If the three people don't really work together and it's just a vehicle for their individual enterprises, then what would the tax advantage be of having a worker co-op as opposed to being three sole traders?