For millions of freelancers, the UK’s entrepreneurial spirit is broken. Over the past year, portfolio contractors and freelancers have battled with the pandemic alongside broken policy promises and IR35 reforms. Could freelancers join forces rather than go it alone to get the economy’s mojo back? Katherine Steiner-Dicks reports
If the odds are stacked against them, freelancers will have no choice but to carve out new solutions to build back their livelihoods and confidence in the freelancer economy.
That’s what millions of Americans did. In 2020, there was an explosion in new business applications in the United States, reaching nearly 4.5 million by year’s end, according to a February report by the Economic Innovation Group. That’s an increase of 24.3% from 2019 and was the highest on record — 51% higher than the average from 2010 to 2019.
“COVID-19 was a social, cultural and emotional shock the likes of which we have not experienced for generations. Becoming an entrepreneur is a deeply personal decision, and the pandemic may have delivered the push for many to embrace it,” said the report.
The UK also saw new business registrations in 2020 amounting to nearly half a million according to data from Companies House. Similar to the US, many Brits started their own businesses in 2020 as a means for survival as a result of the COVID-19 pandemic.
A reported 9.9 million jobs in the UK were furloughed between April and December last year, according to HMRC statistics, and the unemployment rate today is just under 5%, according to the Office for National Statistics.
🚧IR35: Is the UK freelancer market being roadblocked?
Thousands of established freelancers in the UK with loyal and satisfied end-clients have been met with major roadblocks this year: IR35 and Offpayroll reform.
Freelancers, small businesses, contractors and even sole traders that are building up their client base for the first time or replacing clients that pulled the plug during the lockdown, now fear they could be penalised for “false self-employment” if they do not have enough clients on their books. And that’s coming out of a pandemic.
“With IR35 reform in play, HMRC will now start tackling compliance among businesses,” Seb Maley, CEO of Qdos, an IR35 Insurance and Compliance specialist, explained in an Accountancy Age article.
“But IR35 isn’t the only employment status issue on the taxman’s radar – a point that accountants would be wise to make clear to any client that engages self-employed workers,” warned Maley.
“The government have made no secret about their desire to clamp down on what they see as ‘false self-employment’ across the board – by this, I mean sole traders and contractors. Like with IR35, businesses that engage sole traders under the wrong employment status will be held liable for missing tax.”
Maley says it is an issue that accountants should make their business clients aware of. “Worryingly, we’re finding that it’s something many are currently overlooking,” he said.
What is also concerning is that many accountants do not fully understand IR35 rules and simply tell clients to use the government’s CEST tool, which just isn’t geared up for freelancers that have a combination of long-term or ongoing freelance contracts and ad hoc ones. Inaccurate IR35 status results have wreaked havoc on contractors’ livelihoods.
💯Can contractors build back an entrepreneurial spirit by joining forces?
Seasoned UK freelancers, especially those that are in murky IR35 territory, might want to consider combining their business skills with other freelancers by forming a limited company or limited liability partnership together. The company structure would be up to the freelancers. This could be a few IT consultants, for example, or a diverse group of freelancers with complementary skill sets providing a one-stop-shop for existing and new clients.
Joining forces could help freelancers build back their entrepreneurial spirit and income so they are not spread so thin. If you have been accustomed to working solo for years, forming a company with others might seem daunting.
However, if you pool different skill sets it could mean retaining your freedom as a business owner. It could also stop you and other freelancers from worrying about falling inside IR35 when building up a client base. Some contractors may have to work out their contract as per their agreement with a recruitment agency or end-client. That does not stop them from looking for new opportunities.
For example, a group of freelancers could unite to form an agency that combines in-demand experience, such as content, cybersecurity, web designer, User Experience (UX), marketing, social media, and SEO. Or find an even more diverse range of skill sets or sector experience, that when combined, could offer a very unique product or service.
Once you find and pool your talent, you and your fellow business partner(s) could hire an accountant to handle the company registration and account filings. Each freelancer could become a co-owner or effectively a partner much like a law firm, which would likely call for each person to put in an equity contribution. To free up admin time the company could purchase a payroll software service to handle salaries, pension contributions and employer’s national insurance.
All the work would be invoiced through the newly formed company. Virtual assistants could also be hired once the business took off for a variety of tasks from pitch preparation, social media to answering client or project enquiries. In time, freelancers in different markets could be hired or called in to build the brand or serve overseas clients. Before you do, though, always get local and overseas advice on freelancer hiring practices.
🤝Freelancers that joined forces
“At first, it was just bits of work here and there, which allowed us to live the life we wanted; doing seasons snowboarding, travelling, and learning. But by 2007, we had so many project opportunities, we were doing nothing but work,” McNamara told Shopify in a report.
“The lack of support as a freelancer became limiting, and we were finding it hard to progress ourselves, as we were so busy doing the work. As with many freelancers, we’d fallen into the trap of ‘make hay whilst the sun shines,’ because of the nagging feeling that it could all dry up at any point,” he said.
Rather than turn down the work, the pair decided to employ help, which meant forming a company. They formed Retrofuzz, a creative agency that helps brands grow by creating services and experiences that connects culture to commerce.
💪Strength in numbers
Freelancers and portfolio contractors joining forces rather than working alone at this pivotal time could be just what the UK economy needs. With so many permanent staff still on furlough and many companies yet to spell out the hybrid working model of working from home or remotely v. office time, there is a high degree of uncertainty out there.
However, when you have the freedom and flexibility to go after new opportunities as a freelancer you are not at the mercy of just one employer, end-client, recruitment agency, or department head. You are only limited by your tenacity and ability to see new opportunities where others do not.