IR35 pushes freelancer confidence to six-year low

Government tax policies and regulations have also driven freelancers’ 12-month business confidence to the third-lowest level since the Index began. 

The tax policy in question seems to be the proposed changes to IR35 due in April. This is because the overall drop in confidence was driven by the two groups most likely to be affected by the changes: freelancers in Standard Occupational Categories 1 and 2 (including managers, directors, senior officials and professional occupations). 

Freelancers’ confidence in their own businesses has dropped sharply despite the fact that their confidence in the wider economy is now recovering. This is because, when the survey was taken, there was a rising likelihood of a Conservative victory of in the election and, therefore, a break to the Brexit deadlock.

Freelancers’ earnings have also dropped by 6 per cent this quarter, and they expect them to continue to fall, while 71 per cent also expect their business costs to rise over the coming year.

Inna Yordanova, Senior Researcher at IPSE (the Association of Independent Professionals and the Self-Employed), said: “Freelancers’ confidence in their business performance has reached record lows and this seems to be because of fears about the changes to IR35 due in the private sector in April.

“The IR35 changes appear to be behind the confidence dive because confidence has fallen sharply in the two groups that will be affected most by them: SOC1 and 2 freelancers. In fact, if you focus on these groups, which include managers, directors, senior officials and professional occupations, their confidence has truly plummeted this quarter.

“The drop in freelancers’ business confidence is all the more striking because it comes at a time when their confidence in the wider economy is actually starting to recover.

“This alarming slump in freelancer confidence should be a wake-up call to government. The changes to IR35 are causing alarm right across the freelance sector and they should be halted before they do serious damage to this vital part of the workforce.”

Professor Andrew Burke, Dean of Trinity Business School, Trinity College Dublin, and one of the Index authors, said: “It’s a testament to the strength of the freelance sector that despite a fall in fourth quarter earnings and day rates since a year ago, that high-skilled freelancers still earn more than twice the income of equivalent employees. That said, Brexit and the associated weakness in the UK economy have caused freelancers to expect their business performance in 2020 to underperform 2019.” 

Xenios Thrasyvoulou, founder and CEO of PeoplePerHour comments: “I am disappointed, but not surprised, to see another fall in freelancer confidence this quarter, to the lowest in six years. It seems that whilst freelancers are more confident about the wider economy, their confidence in their own industry has fallen off a cliff, thanks to the IR35 changes coming into play in April.

“There is still a chance for government to address these issues and listen to the concerns of this important industry, before more damage is done”

Read the full report here.