The following report is a summary of research conducted by IPSE in relation to the Coronavirus outbreak and the impact it is having on the UK’s highly skilled freelance sector.
The coronavirus outbreak is not just a health crisis – it is an economic crisis too.
As the country has taken necessary measures to shut down everyday activity in order to protect public health and the NHS, there has been an immediate financial impact on people’s jobs and livelihoods.
One of the groups most affected by the lockdown and social distancing are the UK’s self-employed workforce. Comprising just over five million people, some 15 per cent of the working population, this group contributes a combined £305bn to the UK economy.1
Throughout March 2020, IPSE and other organisations that advocate for the self-employed have heard countless stories from those who have seen their future work and income being delayed, cancelled or disappearing altogether. This drop-off has occurred across all industries, from construction to the creative sectors.
The Resolution Foundation estimated that, even before taking account of a wider economic slowdown, there are 1.7 million self-employed workers “who are likely to face major income losses because they work in the sectors most affected by the current lockdown, or are [self-employed] parents affected by school closures”.2
To understand how the coronavirus is affecting them, and to inform how we can help provide answers and support, IPSE conducted a survey exploring:
- freelancers’ attitudes towards the crisis
- the impact it is having on them, their self-employed businesses and their income
- their attitudes towards the government measures provided, before and after the Chancellor’s announcement on 26th March
A survey of the British public by Survation, with a focus on the attitudes of the British workforce, found a high level of concern about the impact of COVID-19 on people’s jobs, the industries in which they work, and the wider economy.3
The research showed that 9 in 10 British people are concerned about the impact of COVID-19 on the economy and public healthcare, while businesses are largely worried about staff availability and planning disruptions. Research from Savanta ComRes also showed that only six in ten small business are confident that they will survive the COVID-19 crisis.4
Our research showed that for the self-employed, coronavirus is not only a health crisis but also an economic crisis affecting freelancers’ income, the demand for the work they do and their client relationships.
An overwhelming majority of freelancers (91%) say they are concerned about the financial impact of coronavirus on them and their self-employed businesses.
This is hardly surprising considering that over two in three (69%) also say that the demand for the freelance work they do has decreased as a result of the coronavirus crisis, and over half (53%) say it had decreased substantially. For a fifth (19%) the demand for work has remained unchanged and only seven per cent reported that it had increased.
Close to half (45%) of freelancers even say that they might have to close their self-employed business if they don’t get more support in the next 3 months. However, despite being concerned about the impact of coronavirus, over a third (35%) think that it is unlikely they will have to close their business as a result.
Freelancers also predict that the declining amount of work they do will inevitably have an impact on their income and personal circumstances.
A wide majority of freelancers (81%) predict that their income will decrease during the next 3 months as a result of the outbreak, while only one in ten (12%) predict it will remain the same and three per cent expect it will increase.
Alarmingly, almost half (45%) say that they are likely to find themselves with no money to cover basic living expenses such as rent and bills, in comparison with two in five (41%) who say that this is unlikely to happen.
When we asked freelancers about other ways the outbreak is likely to affect them, a significant proportion said they think they are at risk of experiencing contract delays or cancellations (74%), using all or most of their savings (68%) and losing clients (60%).
Two in five also think they will have to register for income support (38%) or withdraw money from their businesses (40%). One in seven (14%) expect having to face withdrawal penalties to access their longer-term savings such as pensions or LISAs early.
The research also showed that while some freelancers are prepared for at a least temporary income interruption, the situation is much more difficult for others.
On average, freelancers think that their savings could cover them for 21 weeks if they had to stop working, but the number is much lower for sole traders (13 weeks) in comparison with limited companies (27 weeks).
At the lower end of the spectrum, one in ten (11%) freelancers said they had no savings, and another fifth (19%) think their savings would only cover them for up to a month if they had to stop working. This shows that about a third of the overall freelance population will need to access government support as soon as possible.
Considering the substantial impact coronavirus has already had on freelancers’ income and businesses, it is hardly surprising to see that many of them feel they need greater help and support from the UK government.
A BECTU survey of 5600 creative freelancers conducted before the announcement on 26th March found that the vast majority of them (97%) feel that the government is failing to respond to their concerns during the coronavirus crisis.5
The government outlined its initial response to the challenges posed by the coronavirus outbreak in its Budget on March 11.
Since then, the Chancellor has provided further statements on how the government intends to support businesses and workers. Most importantly, on 26th March he announced the Self-Employed Income Support Scheme – a taxable grant for the self-employed worth 80 per cent of their average monthly profits over the last three years, up to £2,500 a month.
However, the support offered came with certain eligibility criteria which excludes a number of self-employed groups. Those groups excluded include new self-employed businesses operating since April 2019, those with average profits above £50,000 and anyone operating via a Limited Company.
The survey was open for a week before and after this announcement, and therefore contains data on how freelancers’ attitudes towards government support measures and relief changed because of it.
Looking at the full survey period, three in five (60%) freelancers didn’t think that the government support schemes announced would be enough to sustain their income and their business during the outbreak, while just over one in ten (11%) agreed that they would be.
Another one in three (29%) say they don’t know whether the measures will be enough, suggesting that they might be unaware what they are currently eligible to access.
And while on average freelancers’ attitudes didn’t significantly change after the announcement on the 26th March, differences can be found when looking at limited companies and sole traders respectively.
For instance, the percentage of sole traders who didn’t feel that government measures would be enough to sustain their income and business during the crisis decreased from 60 per cent before the announcement to 43 per cent after it.
On the other hand, the percentage of limited companies who didn’t feel that government measures would be enough to sustain them increased from 58 per cent to 69 per cent after the announcement.
Higher levels of concern among limited companies is hardly surprising given that the Self-Employed Income Support Scheme announced by the Chancellor is only available to sole traders and those working in partnership and won’t cover limited companies.
We also asked self-employed people what more they felt the government could do to support them during the outbreak. A number of common themes emerged. Firstly, many felt the government could improve the business environment for freelancers, with some suggestions including the creation of more job opportunities for contractors in the public sector or targeted tax breaks.
Second, several respondents felt there was not enough clear information and guidance available for the self-employed and what they were entitled to – one idea was for a dedicated government helpline specifically for freelancers to access. Lastly, another common theme – somewhat addressed since with the government’s announcement of the SEISS – was a call for income protection support, particularly for vulnerable groups and those most in need, such as self-employed parents.
While the coronavirus outbreak seems to be affecting all freelancers, the data shows that it is affecting sole traders and limited companies differently.
For instance, a greater proportion of sole traders (74%) are experiencing declining demand for work in comparison with limited companies (66%).
Limited companies (48%), on the other hand, are more likely than sole traders (39%) to expect to have to close their self-employed business as a result of the outbreak if they don’t receive any support in the next 3 months.
Sole traders (55%) are much more likely to expect to end up with no money to cover basic living expenses such as bills and rent in comparison with limited companies (39%). They are also much more likely to have to register for income support (48% compared to 34% for limited companies).
Limited companies (54%), on the other hand, are more likely to have to withdraw money from their businesses in comparison with sole traders (19%).
While the impact of the coronavirus continues to be clearly felt on people’s health, it is evident there will be an economic and financial impact as well. The findings in this report highlight that the UK’s self-employed and freelance workforce are already feeling the effect of the country’s shutdown and are worried about the months ahead without the prospect of their incomes improving.
The coronavirus crisis has highlighted many of the complexities of the modern labour market, from the question of employment status and the tax system, to what an appropriate safety net for the self-employed should look like. While these debates are important, it is clear that they must be dealt with once the immediate economic challenges have been addressed.
IPSE welcomed the government’s SEISS as a vital lifeline of support for millions of the UK’s self-employed. Inevitably, however, having moved at speed to help these individuals many freelancers are now concerned they are falling through the cracks in government support.
In order to plug these gaps, IPSE makes the following recommendations:
1. Include dividend income in the Job Retention Scheme to help Limited Company Directors: Unlike employees, sole traders, SMEs and even larger businesses there is little appropriate financial support for Ltd Co Directors. They were excluded from the SEISS, primarily because dividend income was seen as too difficult to account for when calculating earnings. While company directors are eligible for the Job Retention Scheme (JRS), this is currently ineffective because it only covers their PAYE salary, not dividends (the majority source of their income).
While IPSE understands the administrative challenges in separating out different types of dividends, which can likely only be done via a manual check, we believe HMRC should adopt a ‘pay-now, claw-back later’ principle. This would enable HMRC to retrieve funding that was inappropriately provided, once the crisis is over. To fast-stream the process, HMRC should also consider putting a question into the online application form which simply asks what proportion of a Director’s total dividend comes from their company’s profits.
Given that many Directors are already being pushed towards the JRS for the salary element of their income via government guidance, we believe it is appropriate that this scheme, rather than the SEISS, is amended to account for dividend income. This would enable Limited Company contractors to make full use of the scheme.
If the government cannot extend the JRS to this group, it should consider a bespoke approach with either a targeted tax break (e.g. Corporation Tax or a generous increase in the personal allowance) or a direct cash grant similar to the £10,000 available to small businesses with premises.
2. Temporarily relax the application criteria for Universal Credit for the self-employed, particularly those waiting for the SEISS grant in June: While the SEISS grant will provide crucial financial support for the self-employed, many are concerned that the wait until June to receive the money will be too long. Many will struggle to meet basic living costs and as this report shows two-thirds of freelancers (66%) either have no savings or have savings for only up to 3 months. To help avert people relying on savings to cover lost income, particularly those waiting until the June payment arrives, we suggest the government temporarily relaxes the savings taper and threshold (currently £6,000-£16,000 of savings and above) for Universal Credit so that more people can access a basic amount of money in the months ahead without spending money they had otherwise set aside for pensions or other uses.
3. Extend the SEISS scheme to the newly self-employed by letting them file an early tax return: One of the big groups to miss out on SEISS are those new to freelancing, who began before they could submit a 2018/19 tax return. These are the entrepreneurs of the future. To make them eligible for the SEISS, the guidance for the scheme could be changed to allow those who submit their provisional tax returns for 2019/20 ahead of time – for example, a one-month window until early May – in order to receive support. This would also benefit those who built their business up in the last year or transitioned to having self-employment as their main source of income.
4. Introduce a taper above the £50,000 salary threshold for the SEISS: Currently, if your previous average profits are over the cap, you get no financial support under SEISS, creating a harsh cliff-edge. This is different to the employee Job Retention Scheme, where no such upper salary band is in place. IPSE believes the cap should be removed, or a taper system put in place where the benefit slowly diminishes as the earnings increase beyond £50,000.
Appendix