Home Brexit IR35 is more damaging than Covid and Brexit, new research finds

IR35 is more damaging than Covid and Brexit, new research finds

by LLB Finance Reporter
30th Nov 21 12:15 pm

As the ONS (Office of National Statistics) reports a slowdown in economic growth – new research from IPSE (the Association of Independent Professionals and the Self Employed) has today revealed that despite the worries around supply chain shortages, Brexit and the pandemic, the majority of freelancers (70.8%) believe that the most detrimental factor on their financial wellbeing this quarter has been the recent changes to government tax policy.

Released every quarter, the IPSE Confidence Index surveys over 754 IPSE and PeoplePerHour members on the state of the UK’s freelancing sector. In Q3, the index found that following the rollout of IR35 reforms on the private sector in April 2021, confidence in the UK economy over the next 12 months fell dramatically from 22.8 in Q2  to -13.2. The fall in confidence represents a return to negative figures – after initial optimism in Q2 2021 over the relaxation of COVID-19 restrictions.

Following the implementation of IR35, the responsibility for deciding the employment status of self-employed workers has moved from freelancers to businesses. The shift in tax status, while seemingly minor has had a devastating impact on the sector, with IPSE research published last month finding that over 3 in 10 contractors (35%) have left self-employment since the changes.

The other main factors negatively impacting on freelancers’ business performance in Q3 were government regulation relating to hiring freelancers (64.2%) and the pandemic (63%). While COVID-19 was the main factor impacting self-employed workers in the past few indexes, it is clear that the relaxation of restrictions and the success of the vaccination effort has caused freelancers to focus on other issues.

The IPSE Confidence Index has also found that freelancer day rates have increased dramatically across the board, with the average day rate charged by self-employed workers over the past three months now standing at £537 (up from £397 in Q2 2021). This represents the highest average day rate charged by freelancers since the establishment of the Confidence Index in 2014. Moreover, over half (51%) of freelancers predict that day rates will continue to rise over the next 12 months.

While day rates increase, the research has found that work is also increasing, with the number of weeks not worked by freelancers standing at 3.1 weeks. For context, this represents the lowest average of weeks since prior to the pandemic in Q4 2019.

With a combination of increased day rates and increased freelancer capacity utilisation, the IPSE Confidence Index has found that freelancers’ average quarterly earnings have also seen a large increase, with average earnings standing at £24,606 this quarter compared to £18,652 in Q2 2021 – the highest reported figure since Q4 2018 and driven by increases across all three SOC groups.

Derek Cribb, CEO of IPSE (the Association of Independent Professionals and the Self-Employed), said: “While headlines continue to focus on the pandemic, Brexit and supply chains, it is clear from the IPSE Confidence Index that there is only one issue dominating the lives of freelancers: IR35. The changes to tax rules in the private sector in April have sown seeds of doubt and uncertainty into the UK’s self-employed, with a significant number abandoning contract work altogether.

“While it is promising to see increases in day rates, quarterly earnings and work, without changes to IR35, self-employed workers won’t receive the benefits of their hard-earned work. Clearly, the government needs to reevaluate the IR35 rules in light of the disruption and uncertainty they are causing business.”

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