Empowering the Freelance Economy

Self-employed and freelancers fed up with late payments – is it time for the government to step in?

Late payments means debt is piling up for freelancers and the self-employed.
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Freelancers’ financial situations have been seriously impacted by an increase in late payments during the pandemic with one million UK freelancers being pushed into debt since the pandemic hit, according to a report by IPSE (the Association of Independent Professionals and the Self-Employed) and digital bank, Starling.

Over a third (36%) of the self-employed said that instances of late payment have increased and over a quarter (28%) have been paid late by a client during the pandemic. One in six (17%) freelancers find themselves with no money to cover work-related expenses or basic living expenses (15%) as a result.

There is chatter that Chancellor Rishi Sunak may consider extending the deadline for all taxpayers to file their returns, perhaps until March in light of the pandemic. But with just weeks to go until the 31 January deadline, it could be wishful thinking.

Those that have a valid COVID-related excuse for not being able to file on time, such as falling ill with the virus, will be considered by the HMRC so that hefty late fees are not applied. It is important to speak to HMRC in advance to assess your situation.

But as late payments carry over and accumulate into 2021, will the government start to make some noise to late-paying companies? It would be in their best interest so taxpayers can pay their tax bills not only for this year but the next.

Payment on supply

For many freelancers, payment on supply or completion is a far-flung fantasy. If Amazon can get paid before a customer receives goods, then why can’t a freelancer or at the very least, get more immediate payment after the supply products or services? That type of payment model wouldn’t work? Well, the same can be said about small companies.

For some freelance journalists, for example, engaging companies will expect the supply of work to be delivered, but payment will not be made until 30 days after publication, the latter of which the freelancer has no control or even idea when that might be. Depending on when they were first engaged and the length of time to deliver the end product could be easily a month. Other engagers treat their freelance journalists fairer, and pay anywhere between 7 and 30 days after the date of the receipt of an invoice and of course, once an article or project has been submitted. But the time from initial engagement to payment can actually be months. That is what really makes the difference between a salaried and freelance worker.

Who calls the shots?

For many goods and services, the provider calls the shots on when they expect to be paid, yet for many freelancers, it is their client who calls the shots. Sometimes the bigger a company, the longer they will take to pay. They will use rationalisations, such as internal processes, they have more late payments themselves because they deal with so many customers. But you have to at least try to get them on your level as a small business or solopreneur by offering stellar work, but that is paid perhaps in 15 working days. Some people even offer clients a discount if they pay sooner. It would be wise to adjust your rates in case they still pay late. There is also the Credit Protection Association that may be able to help with a particularly late-paying client.

Unpaid work

Over half (60%) of the freelancers surveyed said they were asked to complete work for free to gain skills, exposure or industry experience whilst self-employed (Figure 3).

Looking at IPSE’s data, the largest proportion (36%) of freelancers were asked to complete work for free up to five times in their self-employed career. However, one in eight (13%) were asked to do so between five and ten times, and one in ten (10%) were asked more than ten times.

Women, younger freelancers, sole traders and those earning lower day rates were most likely to have been asked to complete work for free.

This is in line with previous IPSE research revealing the disproportionate effect of unpaid work on women and younger freelancers.

Toll on mental health

As well as causing financial hardship, the increased prevalence of late payments during the pandemic is taking a toll on mental health. Half (48%) who had been paid late said it left them feeling stressed or anxious and a third (31%) said they lost sleep over it.

This increase in late payments is likely to be felt more by women freelancers, as the report showed that they are more likely than men (67% vs 52%) to have encountered this issue with clients. 

Women also reported late payments having a worse effect on them and were more likely to say that it led to them feeling stressed (56% vs 45%) and losing sleep (39% vs 26%). They were also more likely to find that late payments had left them with no money to cover work-related expenses (23% vs 15%) and even basic living costs (22% vs 11%).

Tax bill debt

A fifth (18%) said they will need to borrow money to pay their tax bill, while 47% of freelancers say that they have been putting money aside throughout the year to prepare for their next tax return.

Anne Boden, CEO and Founder of Starling Bank said: “Self-employed people are the backbone of the British economy. These findings indicate how hard hit they have been by the pandemic, creating a real need for banks such as ours to continue to support them by offering competitive rates, competitive loans and money-saving services. Without these, they simply won’t survive.”

Anne Boden, CEO and Founder of Starling Bank: “Self-employed people are the backbone of the British economy.”

As previously reported, The Freelance Informer is calling on the HMRC through its #GETREALHMRC campaign to have a two-pronged and realistic approach to handling self-employed tax bills in 2021 to fairly reflect for the sudden and considerable drop in earnings since the onset of the March lockdown across the UK and ongoing COVID economic crisis.

Demand down?

Britain’s freelance population, which numbered five million in March but has since shrunk to 4.56 million, has faced huge challenges in the last six months including a significant fall in demand for freelance work and a steep decrease in average earnings (25% drop in Q2 2020).

“This research shows in detail the drastic and deeply concerning impact the coronavirus pandemic has had on freelancers’ finances,” said Chloé Jepps, Head of Research at IPSE (the Association of Independent Professionals and the Self-Employed). “In particular, it shows how its effects are likely to last for years to come, as many freelancers have burned through their savings and turned to credit cards and borrowing to get by. “

Jepps said that the pandemic led work to dry up across the sector, and too few freelancers have accessed government support – often because they are excluded from it.

“The situation has been worsened by the increase in late payment – particularly for female freelancers. Before the pandemic, female freelancers were often in a less secure financial position than their male counterparts (in large part because of the gender pay gap). Now, poor payment practices are making the situation even worse, disproportionately affecting their finances and even mental health,” said Jepps.

Next steps to avoid Freelancer Financial Crisis

Jepps alongside the IPSE believe that the government must urgently look at ways to make state-funded support more flexible and fair – to ensure it reaches all self-employed in need.

“It should also look at new and longer-term ways to address the freelancer financial crisis: particularly the damage done by late payment and the disproportionate taxes still hanging over many struggling self-employed,” said Jepps.

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