As mentioned above, there is substantial evidence showing that late payment is an ongoing issue affecting both small businesses and the self-employed.
Looking at our data, over half (56%) of the respondents surveyed said they had experienced late payment at least once in their self-employed career.
Lower paid freelancers (65%), as well as groups that have been found to have lower levels of income in self-employment16, such as women (67%) and younger freelancers (65% of those aged 16-34) were more likely to have experienced late payment.
This is concerning considering that late payment is likely to further exacerbate the already difficult financial situation lower paid freelancers operate in, especially during the pandemic. For instance, when surveyed in April 2020, 74 per cent of freelancers said they had lost income as a result of the crisis.17
While over two in five respondents (43%) said they had experienced late payment at some point in their career before the outbreak of the coronavirus pandemic, a significant proportion – over a quarter (28%) – had experienced it in the last six months alone, illustrating the magnitude of the crisis.
Furthermore, there has been some evidence that levels of late payment have increased since March 2020. For instance, the Credit Protection Association (CPA) has found that the volume of overdue invoices increased by 209 per cent at the beginning of the pandemic.18
The Federation of Small Businesses (FSB) also found that 62 per cent of all small businesses experienced either an increase in late payments and/or had payments frozen completely as a result of COVID-19.19
Our own research found that among the self-employed specifically, there has also been an increase in late payment.
While close to half (46%) of the respondents surveyed said that instances of late payment had remained unchanged since the beginning of the pandemic, over a third (36%) said they had increased and only eight per cent said they had decreased.
Interestingly, younger (57% of those aged 16-34) and less experienced (53% of those who are self-employed for 1-3 years) freelancers were the two groups most likely to indicate they had experienced an increase in late payment since the outbreak of the pandemic.
This is in line with previous IPSE research showing that late payment threatens the future of freelancing, as younger self-employed people are particularly badly affected.20 It is increasingly concerning to see that this has worsened even further in the months following the outbreak of COVID-19.

Late payment can have a significant impact on both freelancers’ wellbeing and their financial circumstances. It can have a negative effect on their savings, levels of debt and personal finances, causing irregularity of income – a top concern for the self-employed21 – and preventing them from developing or expanding their businesses and saving for later life.
The data shows that close to a quarter (23%) of the freelancers who experienced late payment reported using up all or most of their savings as a result (Figure 1). Furthermore, another fifth (22%) had had to use their credit card or overdraft facility because of a delay in payment.
Late payment is affecting both freelancers’ personal and professional finances, with one in six finding themselves with no money to cover work-related expenses (17%) or basic living expenses (15%) as a result.
Women, younger and lower paid freelancers were the groups most likely to have ended up with no money to cover work-related or basic living expenses as a result of late payment. They were also significantly more likely to have borrowed money from friends and family.
Unsurprisingly, the financial difficulties caused by late payment also transfer to negative mental health and wellbeing for freelancers.
Late payment had a significant negative effect on the mental health of freelancers who had experienced it, with half (48%) feeling stressed or anxious as a result and a third (31%) losing sleep over worry (Figure 2).
Late payment also had a negative impact on freelancers’ ability to do their work, with close to a third (30%) feeling less productive, and a quarter experiencing lack of confidence (24%) or feeling unable to concentrate on work (23%).
Women’s mental health was most affected by instances of late payment, with female freelancers being more likely to report all the negative effects on mental wellbeing listed in the survey.
Differences were especially large when it came to experiencing a lack of confidence (37% compared to 18% for men), feelings of inadequacy/failure (30% compared to 12% for men) and losing sleep over worry (39% compared to 26% for men).
The same was also true for other self-employed groups that are less stable financially, including the younger, lower paid and less experienced freelancers, illustrating the connection between financial and mental health difficulties.


According to the Prompt Payment Code, which sets the gold standard in payment terms and is now under the office of the SBC, all signatories of the code should pay suppliers within a maximum of 60 days, in line with late payment legislation requirements.22
However, there have been numerous suggestions that the target for prompt payment terms should be brought down from 60 days to 30, and signatories of the Prompt Payment Code are currently encouraged to work towards adopting 30 days as the norm.
Furthermore, too often customers abuse their supply chain with unnecessarily long payment terms and there is an indication that this has become more severe since the beginning of the pandemic. For instance, FSB found that one in ten (10%) of all small businesses have experienced a lengthening of payment terms from customers as a result of COVID-19.23
Looking at our data, on average, freelancers usually wait 32 days to receive a payment from a client (slightly over the advised 30 days), with 40 per cent usually getting paid within the first 15 days.

However, over a fifth (22%) usually have to wait more than the advised 30 days, and a significant proportion – one in seven (15%) – usually have to wait more than 59 days to receive payment for the work they have completed.
To follow up on instances of late payment, freelancers also spend a significant amount of time and resources every year chasing unpaid invoices. Previous IPSE research showed that this was the case even when freelancers are taking time off, with over a fifth (21%) chasing invoices for late payment when they were on holiday.24
The data shows that, on average, freelancers spent 12 hours in the last year chasing invoices for late payment.
This means that on average freelancers from the highest earning group can end up losing over £1,000 a year as a result of time spent chasing invoices for late payment instead of working.
Therefore, freelancers end up losing not only a substantial amount of time as a result of late payment but also money.
Freelancers who experienced late payment are currently owed an average of £5,140 for the work they have completed, with single payments owed going up to £55,000. Men (£6,816), limited company directors (£7,958) and those in the highest earning brackets (£10,985 for those earning over £500 a day) were owed the highest amounts of money as a result of late payment.


Lorraine Finch
Freelance Conservator of Cultural Heritage, self-employed for 17 years, operating as a sole trader.
“There have been times when payments have been so late and my cash reserves were low, that I have worried about being able to pay my bills.”
Throughout my self-employed career I have experienced variable levels of late payment from clients. I usually find that a particular client either pays on time or is a late payer. On average I am waiting around three months to be paid for work that I have done and for this reason I try to maintain at least three months unrestricted reserve.
Fortunately, I was able to build up a bigger reserve prior to the pandemic but I have definitely seen instances of late payment increase since the outbreak of the pandemic. I am now seeing around 40 per cent of my clients paying late. This has reduced my business reserves and made me much more vigilant of my business outgoings.
It is a terrible drain. Watching my reserves reduce with no payment coming in to build them back up is a worry. It is also very difficult to contact the finance departments responsible for the payments, so I have no ability to chase payments except through my client. It is a delicate balance of asking my client to chase their finance department and not pushing too hard, and potentially losing future work.
Late payment is also affecting my mental health and usually means that I don’t chase payments as vigorously as I should leading me to bottle up the stresses and strains. It causes me anxiety and I have trouble sleeping, finding it difficult to sleep due to the constant mental dialogue of worry about money. I have even noticed a loss of appetite as a result.
There have been times when payments have been so late and my cash reserves were low, that I have worried about being able to pay my bills. You can imagine the stress and strain on my mental health and wellbeing.
I do try and ensure I am paid on time by including a clear statement of payment terms on my invoices. Whilst the payment terms do make some clients pay on time, instances of late payment continue and ultimately, I have no way of enforcing the payment term.
Over half (60%) of the freelancers surveyed said they were asked to complete work for free to gain skills, exposure or industry experience whilst self-employed (Figure 3).
Looking at our data, the largest proportion (36%) of freelancers were asked to complete work for free up to five times in their self-employed career. However, one in eight (13%) were asked to do so between five and ten times, and one in ten (10%) were asked more than ten times.
Women, younger freelancers, sole traders and those earning lower day rates were most likely to have been asked to complete work for free.
This is in line with previous IPSE research revealing the disproportionate effect of unpaid work on women and younger freelancers.25
Significantly, it is among the younger age groups where there are higher rates of doing unpaid work voluntarily to further their skills.26 This is concerning, considering that research in the creative sector has found almost half (45%) of freelancers did not have enough money to cover work-related costs, while four in ten could not cover basic living expenses (e.g. rent, bills) as a result of doing unpaid work.27

The increase in instances of late payment, however, is not the only factor contributing to the poorer financial wellbeing of the self-employed during the coronavirus crisis.
Previous IPSE research showed that at the end of March 2020, 69 per cent of freelancers said that the demand for the work they do had decreased as a result of the crisis.28
According to the Confidence Index, a quarterly survey that tracks the business performance and economic outlook of freelancers, demand for work continued to decrease in the second quarter (April-June) of the year, reaching its lowest point for the last seven years.29
In the second quarter of 2020, freelancers’ spare capacity, the amount of time each quarter they spend without work, reached the record of 5.5 weeks out of 13. The decreasing amount of work during the pandemic also transferred to a 25 per cent decrease in quarterly earnings for the freelancing sector.30
To address the decreasing amounts of work and the deepening financial difficulties of freelancers throughout the pandemic, the government introduced a range of support measures for the self-employed including the Self-Employment Income Support Scheme (SEISS), the postponement of changes to IR35 regulations, Bounce Back Loans (BBLS) and deferred VAT tax payments.
However, over half (56%) of the freelancers surveyed did not access any of the government schemes introduced to support the self-employed (Figure 4).
For those who accessed support, the most common measures included the Coronavirus Job Retention Scheme (CJRS) (15%), the Self-Employment Income Support Scheme (12%) and deferring self-assessment tax payments to July 2021 (12%). One in ten also deferred their VAT payments (10%) or accessed the Bounce Back Loan Scheme (10%).
There are substantial differences in the type of measures accessed on the basis of freelancers’ legal business form.
For instance, a third (33%) of sole traders took advantage of the SEISS . Limited company directors, who are not eligible for the SEISS, were more likely to access the CJRS (22% compared to 2% for sole traders), deferral of self-assessment payments (16% to 3% for sole traders) and VAT payments (14% to 2%) and access the BBLS (13% compared to 3% for sole traders).
Looking at the different demographic groups, women, younger and lower paid freelancers were more likely to access the SEISS. This could potentially be explained by the fact that these groups are more likely to be registered as sole traders.
Notably, none of those who became self-employed in the last year accessed any form of government support.


There are also other indications that government support was not enough for covering the financial needs of freelancers during the crisis.
Approximately a quarter of the freelancers surveyed stated that they had used most or all of their savings (27%) or used their credit cards (23%) to support their financial situation during the coronavirus crisis (Figure 5). A fifth (20%) also withdrew money from their businesses and one in seven (14%) used their overdraft facility. One in ten had to borrow money from friends/family (11%) or sell items they owned (10%).
Therefore, the crisis is affecting not only freelancers’ current financial wellbeing, but is also likely to end up having a significant impact on their future financial health, as many used up their savings or accumulated debt. In fact, the percentage of freelancers with business debt increased from 22 per cent in quarter three (August-September) 2019 to 27 per cent in quarter three 2020.31
Women and also younger and lower paid freelancers were the groups most likely to have borrowed money from friends and family. Women and younger freelancers specifically were also more likely to have sold items they own to support their finances.
Younger freelancers were most likely to have used most or all of their savings, while those in the lower earning brackets were significantly more likely to have used their credit cards or overdraft facility.
Therefore, the groups that are already experiencing the greatest financial difficulties in self-employment have also been more significantly affected by the coronavirus economic crisis. It is likely that this has contributed to the dropping numbers of self-employed people in the UK since the beginning of the pandemic.
Recent Office for National Statistics (ONS) data showed that in the third quarter of 2020 (June-August) the number of self-employed people in the UK fell by 240,000 and reached 4.56 million, wiping out the growth in self-employment achieved in the last five years since 2015.32
Furthermore, not only is the crisis likely to contribute to people being forced out of self-employment, it is also likely to lead to many freelancers not being able to develop or expand their self-employed businesses in future.
For instance, limited company directors are ineligible for the SEISS and are also much more likely to have withdrawn money from their businesses, which could have a significant financial impact on them in the long-run.



All freelancers are required to file a self-assessment tax return each year and pay tax on their income, regardless of whether they operate as a sole trader or a limited company. Previous IPSE research showed that on average self-employed people spend 79 hours a year on completing their
annual tax return.33
This is undoubtedly one of the most important financial responsibilities for all those working for themselves, even now, when they are facing significant financial difficulties as a result of the coronavirus crisis.
As mentioned earlier in the report, the government gave freelancers the option to defer their self-assessment tax payment from 31 July 2020 as normal, to 31 January 2021 in order to limit the financial impact of the coronavirus crisis on the sector.
In September 2020, the Chancellor further announced that delayed self-assessment payments can be paid back over an 11-month interest-free period (for those owing up to £30,000), which can be organised through the ‘Time to Pay’ facility.
The most popular strategies freelancers used to save/access money for their tax return before the coronavirus crisis included putting money aside on a regular basis throughout the year (34%) and putting money aside when they receive a payment from a client (32%).
While some people seem to have been well prepared for their tax return, others mentioned putting money aside in the last few months before the deadline (13%) or withdrawing money from their savings account (13%) as a key strategy.
Younger and lower paid freelancers were less likely to save money for their tax return throughout the year or after they received a payment in comparison with older and higher paid freelancers, meaning it’s likely these groups were less prepared for their tax return before the coronavirus crisis.
Looking at levels of preparation for their next tax return, almost half (47%) of freelancers said that they have been putting money aside throughout the year to prepare for their next tax return – when surveyed in September 2020. However, not all freelancers seem equally prepared for the future.
A small but significant proportion – one in seven (14%) – said that they will start saving money closer to their tax return deadline. Close to a fifth (18%) also said they will have to borrow money in some shape or form to prepare for their next tax return.
Groups most likely to have been putting money aside throughout the year included men (52%), those over 55 (54%), limited company directors (53%) and higher earners (58% of those earning over £500 a day).
Women (22%) and younger freelancers (21% of those aged 16-34) were significantly more likely to say they will start saving for their next tax return closer to the deadline in comparison with men (10%) and older freelancers (10% of those over 55), indicating that these groups may face more difficult financial situations in the coming months as a second wave is spreading across the country.
Therefore, while some freelancers are prepared for paying their next tax return in July 2021, a significant proportion indicate they will face significant difficulties in doing so.
This report has shown that freelancers’ financial situations have been continuously deteriorating since the coronavirus outbreak in February 2020, and there are many factors contributing to this.
Over a third (36%) of freelancers said that instances of late payment have increased since the beginning of the coronavirus crisis and those of them who had experienced late payment are currently owed an average of £5,140 for the work they have completed.
Late payment is not the only factor contributing to the poor financial wellbeing of freelancers during the crisis.
Over half (56%) of the freelancers surveyed did not access any of the government schemes introduced to support the self-employed, and a significant proportion of those surveyed have used most or all of their savings (27%) or credit cards (23%) to support their financial situation. Finally, close to a fifth (18%) said they will have to borrow money in some shape or form to prepare for their next tax return.
There are a lot of things that government, industry and support organisations such as IPSE can do to improve freelancers’ financial circumstances, especially now during the coronavirus crisis, and these are outlined fully in the recommendations section below.
Make COVID support for the self-employed flexible and fair to continue to support individuals who are in need and cover groups who fell through the gaps.
The SEISS has provided vital support to over 2.6 million self-employed people34 but many have fallen through the gaps. As COVID cases rise and we find ourselves in a second national lockdown, it is vital people are supported through the coming months. It’s welcome that the government has raised SEISS to 80 per cent of income again to match the furlough scheme. However, there are still deep structural problems with the scheme, which the government must urgently address. Government should make self-employment support more fair by expanding support to those groups who have fallen through the gaps.
Give the Small Business Commissioner more powers to tackle late payment, including the ability to launch investigations, impose fines and address ‘small business to small business’ complaints.
The creation of the Small Business Commissioner in 2016 was an important reform in improving the UK’s prompt payment culture. However, with so many freelancers still experiencing late payment, the role must be enhanced if it is to make a difference.
The SBC should be given more resources and powers of enforcement – specifically so that the Commissioner can levy fines on companies that are persistent late payers. The SBC’s remit should also be expanded so that it can consider complaints from small businesses, such as the self-employed, about other small businesses who do not pay on time. This would help improve payment practices throughout all business and not just the larger companies, who many freelancers do not work with.
Government and industry should raise awareness of businesses’ late payment rights and promote practical steps individuals can adopt to reduce late payment.
Often one of the biggest factors leading to late payment is that those who are owed money either do not know what their rights are and the appropriate steps to claiming money back; or they are too fearful of jeopardising their commercial relationships by appearing to be ‘difficult’ chasing up late pay.
Raising awareness of existing rights, particularly the ability to charge interest on late payments and contact the Commissioner’s office to raise complaints, could stimulate an improvement in payment culture. Government, led by the SBC, should lead a public information campaign on this. IPSE, along with other organisations and businesses supporting the self-employed, would be willing to work with the Commissioner to promote this campaign.
Commission a fundamental review of the UK’s tax system and how it affects small businesses and the self-employed, to make it easier for them to file returns.
Too much of freelancers’ time is taken up with unnecessary financial struggles like determining their tax status or navigating the self-assessment process. Government should strive to make life as easy as possible for the self-employed and avoid creating new barriers to them running their businesses.
Self-employment has grown in recent years, but the UK’s tax system and financial institutions have not kept up with the pace of change. The complex tax system is out of date and penalises the self-employed: the government should conduct a full, wide-ranging review of self-employed and small business taxation to unleash the UK’s entrepreneurial spirit and make it easier for self-employed people to file returns, whether they are sole traders or company directors.
Appendix
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