Empowering the Freelance Economy

The Spring Statement: what should freelancers expect and what could surprise them?

Rishi Sunak in a photo posted on his Facebook page back in November 2020.
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Just when work opportunities and day rates started to soar towards pre-pandemic levels, freelancers could see those gains wiped out.

The cost of living crisis will be exacerbated for freelancers come April 2022 when increased national insurance and dividend taxes for umbrella company workers and limited company directors come into effect.

That’s why ahead of the Chancellor’s Spring Statement on March 23rd, freelancers and others are calling on Rishi Sunak to not make any more enemies among the self-employed and contractor workforce.

But it would seem that the tax rate rises have already been factored in. Oliver Dowden, the Tory Party chairman, said the Government must “stand by” the decision to increase national insurance contributions by a 1.25 percentage point next month, a move designed to pay to clear the coronavirus-induced NHS backlog.

What other surprises could HMRC spring on freelancers?

“We would call for an extension to the soft landing of IR35 for a year given the struggles that many firms have faced implementing the new Off-payroll rules,” said Dave Chaplin, CEO of tax compliance firm IR35 Shield.

“It would be prudent for the Chancellor to signal his intention around the Small Companies Exemption given that many experts suspect it will be removed soon,” suggested Chaplin.

He continued: “One must remember that HMRC has openly said that the original IR35 legislation was unworkable and unenforceable. The current exemption was a carve-out, which in my view has delayed the inevitable.

“Having two systems in place will likely be considered nonsensical by HMRC, and they would be right, especially considering that firms already have to consider status when they hire sole traders.

“Once the current rules are bedded in, and HMRC is able to convince Ministers that everything is sound, the exemption will go.

My preference would of course be for the entire legislation to be binned so that we get back to an era of tax certainty again. But, many of us have tried swimming against the tide for over 20 years, and remain cynical.”

Dave Chaplin, CEO IR35 Shield

Confidence in economy is waning despite day rates rising

New research from IPSE (the Association of Independent Professionals and the Self Employed) revealed this month that freelancers’ average quarterly earnings soared in Q4 2021 to the highest level since prior to the EU referendum at £29,547 – up from £25,551 in Q3 2021.

The increase in quarterly rates marks an end to two years of COVID-19 uncertainty as the figure represents a doubling of incomes since the start of the pandemic in Q2 2020.

“Freelancer day rates have risen across the board, with the average day rate charged by freelancers over the last quarter now standing at £584, increasing from £535 in Q3 2021,” said Andy Chamberlain, Director of Policy at IPSE.

“This represents the highest average day rate charged by freelancers since the establishment of the Confidence Index in 2014 and follows a significant increase between Q2 2021 and Q3 2021 (£397 in Q2 2021 to £535 in Q3 2021).

“The record-high average day rates charged by self-employed workers can be attributed to the need to cover rising costs, not least the planned increase in National Insurance and the rising cost of living and prices of goods but also due to the impact of IR35 reforms in the private sector – with freelancers increasingly operating within IR35 and having to charge higher day rates to cover outlays such as Employer’s National Insurance, and where applicable, the Apprenticeship Levy,” said Chamberlain.

However, despite the rise in work and quarterly incomes, the report found that freelancer confidence in the UK economy has fallen dramatically from -13.2 in Q3 2021 to -19.1 in Q4 2021.

The Freelancer Confidence Index found that this has largely been driven by the controversial reforms to IR35 in April 2021, which has remained the biggest detrimental factor impacting freelancers for the second quarter running.

Freelancers deeper in debt

With inflation rising to its highest level in almost 30 years, the report found that a significant majority of freelancers (81%) are worried about the cost of living and are predicting rising business costs over the next 12 months.

Following two years of economic uncertainty and COVID-19 restrictions, the IPSE report found that almost 4 in 10 freelancers (38%) are in debt, with nearly 2 in 10 (16%) now accruing debt via credit cards issued in the name of their self-employed business.

“Concerningly, the number of freelancers reporting that they have no business debt in Q4 2021 (59%) is lower than the previous quarter (67%) – showing that more and more freelancers are unfortunately falling into debt,” the report stated.

“Self-employment can be a driving force for economic growth but if it is to realise its full potential, the sector must be supported by government policies that seek to encourage, not hinder, its natural vibrancy,” said Derek Cribb, CEO of IPSE.

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