Introduction
Too much of freelancers’ time is taken up with unnecessary financial struggles like chasing up unpaid invoices, accessing financial products or navigating the tax system. A majority of self-employed people cite irregular income or unpredictable finances as their top concern.
Government should strive to make life as easy as possible for the self-employed and avoid creating new barriers to them running their businesses. To fix this, IPSE believes government should act in a number of areas that affect freelancers’ financial wellbeing.
The coronavirus pandemic is not just a health crisis but an economic one as well – and the self-employed have been amongst the hardest hit in the financial fallout. IPSE research has found two-thirds (69%) of freelancers have seen demand for work decrease, three-quarters have seen their incomes fall, and our quarterly tracker of self-employed business confidence is at a record lows amongst freelancers. IPSE campaigned for the introduction of the Self-Employment Income Support Scheme (SEISS) that has benefited over 2.6 million self-employed people – but there are gaps in support that still need to be addressed and we are urging the government to do more to help freelancers through the crisis.
Our recommendations:
- Adopt a ‘flexible extension’ approach to the SEISS scheme, similar to the Job Retention Scheme so that self-employed people don’t face a financial cliff-edge in support
- Include dividend income in government support to help Limited Company Directors, who have been excluded from support
- Extend the SEISS scheme to the newly self-employed by letting them file an early tax return
- Introduce a taper above the £50,000 salary threshold for the SEISS so that those earning just over the limit are not penalised
- Review the eligibility criteria for SEISS that stipulates self-employed trading profits must be at least equal to the sum of non-trading income
We need a more modern tax system that genuinely supports our smallest businesses. The current tax system is based on the outdated employer-employee model - it is no longer fit for purpose in an age of growing self-employment and new forms of work. The next government should be pioneering a bold approach that looks to lift the burden of admin and provide greater clarity across a range of areas. A review could also resolve longstanding confusions and difficulties within the system, particularly IR35, that have been given additional urgency during the recent coronavirus crisis.
Our recommendations:
- Commission a fundamental review of the UK’s tax system and how it affects small businesses and the self-employed.
- Repeal the IR35 legislation or, failing this, suspend the roll out of the off-payroll working rules to the private sector for at least two years until a full review of its implementation in the public sector has taken place.
- Commit to no new tax rises or National Insurance Contribution (NIC) increases on the self-employed.
Late payment is the scourge of the self-employed. Around two-thirds of the UK’s self-employed have experienced it and freelancers lose an annual average of 20 days a year chasing unpaid invoices. This disruption can lead to stress, anxiety and insecure income. Freelancers find it difficult to enforce what rights they do have and are fearful of putting commercial relationships at risk by appearing to be ‘difficult’ in chasing up unpaid invoices or charging interest on them. Simply put, this is not good enough. IPSE has long campaigned on this issue and we led the way in calling for the Small Business Commissioner to be established in 2015. We have been pleased to see progress on this issue but there is much more that can be done, from fast-tracking proposals announced in June 2019 to give the Commissioner powers to fine late payers to ensuring government payment practices lead by example.
Our recommendations:
- Fast-track plans to give the Small Business Commissioner powers to fine and ‘name and shame’ late payers and explore extending the Commissioner’s mandate to target late paying SMEs as well.
- Write the Prompt Payment Code into law and reduce standard payment terms to 30 days
- Make public sector payment practice the ‘gold standard’ for private businesses to follow
- Build a UK Prompt Payment Index to track performance over time
Even before the pandemic, IPSE research showed that too many freelancers simply weren't saving for later life: just 31 per cent were saving into a pension. And during the pandemic, over a quarter of freelancers (27%) have burned through all their savings just to get by. And with over 50s the biggest freelance age group by far, it's clear government must act on this issue.
A simple, one-size-fits-all solution like Auto-Enrolment simply won't work for the diverse self-employed sector. Instead, we've called on government to develop and introduce new and tailored products to improve saving among the self-employed. One of the most promising is the sidecar pension, which works by channelling money into both a pension pot and a separate ‘rainy day fund’ to be drawn on in times of emergency. We are now urging government to finish testing this and roll it out as quickly as possible to freelancers. We believe tailored savings products should be targeted particularly at Millennial and Generation Z freelancers, who are in most urgent need of savings solutions.
Our recommendations:
- Government should work with the pensions industry to encourage more flexible savings solutions and test interventions for freelancers to save for later life.
- Automatic Enrolment (AE) will not work for the self-employed – instead government should roll-out the sidecar pension scheme, which splits savings between a pension pot and an emergency fund, to the self-employed.
- Provide tailored guidance on saving for the self-employed via the Money and Pensions Services, the financial guidance body.
Freelancers find it particularly difficult to get on the housing ladder, due to their more variable income and the wave of tougher lending rules introduced since 2014. Research has found that more than two thirds of self-employed people applying for mortgages felt that they were asked intrusive questions and had to wait an unacceptable length of time before their loans went through. But the growing self-employed workforce means lenders are having to become much more open to these potential buyers, who will become an increasingly large market. Six years on from the implementation of the Mortgage Market Review, the government should encourage the mortgage industry in de-risking self-employed people to make it easier for them to successfully apply for mortgages.
Our recommendations:
- Government and the mortgage industry should work together to explore tailored products and ways of making it easier for the self-employed to successfully apply for mortgages.
- Modernise the tax and employment system to make it easier for lenders to assess freelancers’ financial situations and de-risk them as customers.