Coronavirus Report

Introduction

Introduction

 

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

 

Impact on income and businesses

Impact of the coronavirus outbreak on freelancers' income and their self-employed businesses

 

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.


 

Attitudes towards the government

Freelancers' attitudes towards the government measures announced

 

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.

 

Sole traders vs Ltds

Differences between sole traders and limited companies

 

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%).

Government support

Government support for the self-employed

 

Early government measures

The findings in this survey have also helped to inform IPSE’s policy positions that we are putting forward to government.

Initially, the government’s response to the coronavirus and its impact on the self-employed – outlined in the Budget (March 11) and supplemented by further announcements on the 17th and 20th of March - was two-fold.6

Firstly, it made the welfare system more generous and easier to access for the self-employed. This included removing the ‘Minimum Income Floor’ for the self-employed applying for Universal Credit and increasing the standard allowance by £1,000 a year.

Second, the government unveiled a package of business and financial support measures including government-backed loans, VAT and income tax deferrals, and some extra relief around mortgages and access to credit through banks and building societies. 

However, IPSE was concerned that these would simply not be enough to cover the dramatic losses in freelancers’ incomes. The amounts available through Universal Credit and ‘new-style’ Employment and Support Allowance are low, the systems are difficult to navigate and not well-suited to delivering rapid financial assistance.

Similarly, the government’s business support measures are not well-tailored to the self-employed who, unlike many SMEs and larger businesses, need fast cash flow support and not long-term debt liabilities.

IPSE, supported by other organisations including the Creative Industries Federation, called for a Temporary Income Protection Fund for the self-employed. This was intended as a fund, to be distributed via grants, that would be open to all self-employed people – including Ltd Co directors – with a minimum and maximum ceiling for income support.

 

Announcement of the SEISS on 26th March

After sustained pressure, the government did go further. Following the principles set out by the Coronavirus Job Retention Scheme – whereby taxable government grants will cover 80 per cent of the salary of workers who would otherwise be laid off, up to a total of £2,500 a month – the government announced the Self-Employment Income Support Scheme (SEISS).7

This package of support will provide a taxable grant covering 80 per cent of self-employed trading profits averaged over up to three years of tax returns, up to £2,500 a month, covering the three months to May.

To be eligible, self-employed people will need to have submitted a 2018/19 tax return, had average trading profits of less than £50,000, and have more than half of their income coming from self-employment rather than PAYE work. The grants are expected to be paid out in early June. The scheme is also only available to sole traders and members of a partnership.

 

Groups that are not eligible for the SEISS

While this was a historic package of support there are, inevitably, some holes through which many freelancers are falling through. This is not surprising given the five million self-employed are a varied and diverse group.

The Enterprise Research Centre estimates around 750,000 sole traders will miss out on the scheme.8 The Institute for Fiscal Studies (IFS), using a different methodology, has estimated that in total around 2 million people with some self-employment income will not be covered by the SEISS.9 These figures do not include Limited Company directors, who are also not eligible for the scheme.

Those who miss out include:

  • New or recently established self-employment: As the SEISS is based on the 18/19 tax return, this excludes many people who became self-employed after April 2019 and would otherwise be about to file their first statement of earnings. While they will be eligible, those who only have a few months of trading history for the 18/19 tax year but have since built their self-employed business up will also only be partially covered.
  • Those with less than half of their income from self-employment: Another group, estimated by the IFS to be around 1.3 million people, who will be ineligible are those who received less than half of their income from self-employment. The scheme is designed for those are majority self-employed but this inevitably means those who have a self-employed ‘side hustle’ alongside their main job, or those who have been building their business up while they remain in employment, are not included.
  • Those earning above £50,000 on average: Unlike the government’s Job Retention Scheme, the SEISS has an effective salary cap – those who earned, on average, more than £50,000 over their previous tax returns from 2018/19 will miss out entirely.  
  • Limited Company directors: A group who are self-employed in all but name, those who are owner-manager of their own limited company have also missed out. The SEISS is based on ‘earned’ income and therefore this group, who pay themselves primarily via dividends along with a smaller portion as a PAYE salary, are not included. This is a varied group – many will have deliberately structured their business in this way, others will have been required by clients or the industry they operate in. Data on sole-director Limited Companies, also sometimes known as Personal Service Companies, is limited – recent estimates place the total number in the UK between 307,000 and 470,000, however the ONS has put the figure at 715,000 as of 2019.10

The findings in this report highlight the stark economic impact of the coronavirus on UK freelancers, and their anxieties about their financial prospects in the coming months. To address these, and the discrepancies in the SEISS, IPSE has outlined additional policy recommendations at the end of this report.

While the government deserves credit for its package of support and the action it has taken, it should now try its best to ensure no freelancer is left behind. Only by supporting our flexible, freelance and entrepreneurial workforce now in their time of need can we be sure of a rapid recovery once the coronavirus crisis eventually passes.

 

Conclusion and recommendations

Conclusion and recommendations

 

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

Appendix

Data and methodology

The analysis is based on the responses of an online survey which was open from 19th March until 1st April 2020. The survey was completed by 941 freelancers who are IPSE and PeoplePerHour members, 37 per cent of whom were female and 62 per cent male, with an average age of 45 and average daily rate of £415.

References

  1. IPSE, The Self-Employed Landscape, 2020.
  2. Resolution Foundation, Coronavirus Research, March 2020 Available online at: https://www.resolutionfoundation.org/comment/unprecedented-support-for-employees-wages-last-week-has-been-followed-up-by-equally-significant-and-even-more-generous-support-for-the-self-employed-but-gaps-remain/
  3. Survation, Attitudes of British Public Towards COVID-19’s Impact on Jobs, Industry and the Wider Economy, March 2019.
  4. Savanta ComRes, Coronavirus Business Tracker, 1 April 2019, Available online at: https://savanta.com/view/only-six-in-ten-small-businesses-confident-they-will-survive-the-covid-19-crisis/#.XoXEeohKiUk
  5. BECTU, Survey of 5600 Creative Freelancers, March 2019, Available online at: https://bectu.org.uk/news/government-has-completely-lost-the-confidence-of-freelancers-bectu-survey-finds/
  6. UK Government, Budget 2020, March 2020, Available online at: https://www.gov.uk/government/topical-events/budget-2020
  7. UK Government, Chancellor Gives Support to Millions of Self-Employed Individuals, March 2020, Available online at: https://www.gov.uk/government/news/chancellor-gives-support-to-millions-of-self-employed-individuals
  8. Enterprise Research Centre, 750,000 Self-Employed Miss out on UK Coronavirus Support (Study), April 2020, Available online at: https://www.enterpriseresearch.ac.uk/750000-self-employed-miss-out-on-uk-coronavirus-support-study/
  9. The Institute for Fiscal Studies, Income Protection for the Self-Employed and Employees During the Coronavirus Crisis, April 2020, Available online at: https://www.ifs.org.uk/uploads/publications/bns/BN277-Income-protection-for-the-self-employed-and-employees-during-the-coronavirus-crisis.pdf
  10. The Institute for Fiscal Studies, Who are Business Owners and What are They Doing? July 2019, Available online at: https://www.ifs.org.uk/publications/14241; IPSE, The Economic Impact of Personal Service Companies, 2016, Available online at: https://www.ipse.co.uk/uploads/assets/uploaded/66e7889e-d7f0-4a58-97a4ef2fbdc085f1.pdf

Acknowledgements

This report was written by Alasdair Hutchison, Policy Development Manager and Inna Yordanova, Senior Researcher at IPSE.

IPSE would like to thank PeoplePerHour for their support in collecting the data for this report.

 

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