New research from IPSE suggests the self-employed sector’s contribution to the UK economy fell by an estimated £25bn in 2022.
The findings are a “wake-up call” for government to change course on its agenda for the nation’s smallest businesses, said the Association of Independent Professionals and the Self-Employed (IPSE).
The Off-payroll legislation has been an act of self-harm, to UK Plc, and politically, an act of self-harm to the Conservative Party.Dave Chaplin, CEO IR35 Shield
The findings suggest that whilst the solo self-employed population remained stable at 4.1 million in 2022, the sector’s economic contribution plunged by an estimated £25bn to a total of £278bn – an 8 per cent contraction compared to 2021.
With the overall population figures remaining stable, IPSE said that the current estimate is based on a lower average turnover for solo self-employed businesses.
“This can be attributed to a multitude of factors, such as the fact that the IR35 reforms have reduced income, government tax policy towards the sector and the fact that freelance businesses now have higher overheads as a result of increasing inflationary pressures,” said IPSE.
An act of self-harm?
Specialists serving contractors believe that the Off-Payroll rules are flawed and have a negative impact on the UK economy.
“The Government needs to act quickly to fix the longstanding flaws in the badly implemented Off-payroll legislation because it’s led to a negative behavioural effect on UK Plc., said Dave Chaplin, CEO of tax compliance firm IR35 Shield responding to the IPSE report.
“HMRCs own recently commissioned report demonstrated the administrative burden on businesses to be 74 times more than Parliament was originally told it would be. The structural double-taxation flaw is not only unfair but causing firms to push work offshore, leaving UK freelancers on the bench, earning no money and paying no tax,” said Chaplin.
Chaplin, said the legislation’s flaws are “perverse” as any recruitment agency could “get saddled with a hiring firm’s tax bill, even though the agency had no cogency over the IR35 status decision.”
“The Off-payroll legislation has been an act of self-harm, to UK Plc, and politically, an act of self-harm to the Conservative Party. If the Conservatives want to have any chance of winning back the votes of the self-employed, they will need to act decisively and quickly at the Spring Budget in March.”