Career

What was in the Budget for freelancers and contractors?

Words, hubbul

Earlier this week The Chancellor unveiled his plans for the UK economy over the next 12 months, in his eagerly anticipated Budget speech.

Carrying the slogan ‘Fit for the Future’, many viewed this Budget as make or break for Philip Hammond, whose own future has been hanging in the balance following the disaster of the 2016 Budget, which will not be remembered fondly by the self-employed.

Another all out attack on the independent workforce would not just have risked his relationship with the UK’s 4.8m self-employed, but potentially destroyed it. So this must have influenced his and the Government’s economic plans for the year ahead.

Mr Hammond did not pull a rabbit from his hat this time, and in many respects kept changes which impact freelancers and contractors to a minimum.

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IR35 consultation announced.

Much to the relief of contractors and the extended business community, anticipated reform to private sector IR35 was not announced.

Speculation has been mounting that the Government plan to extend changes to the off-payroll working rules from the public sector into the private sector. This would see 5.5m private sector companies and recruitment agencies handed the responsibility of setting contractors' employment status – a move which would see them made liable for any missing tax should they be deemed by HMRC to have made an inaccurate decision.

The Government did announce plans to hold an IR35 consultation early next year, in the 'Red Book' released immediately after The Chancellor’s speech. In many respects, this was a victory for contractors who will be able to continue setting their own employment and IR35 status in the private sector for the short term at least.

IPSE’s Chris Bryce welcomed the news.

“Instead of extending the changes now, Mr Hammond paid heed to IPSE’s warnings and pledged to consult on extending the changes to the public sector and ‘draw on the experience of the public-sector reforms, including through external research’. IPSE stands ready to join the consultation to ensure it takes into account the needs of the legitimately self-employed and accurately reflects the heavy damage the changes to IR35 have caused to the public sector.”

Any move to roll out reform to the private sector as early as next year would have been unwise. However, that the Government are reviewing IR35 shouldn’t gloss over what is a short-sighted approach to tackling tax avoidance, as Qdos Contractor CEO Seb Maley explained.

“A consultation doesn’t detract from the bigger issue, and that is this Government is failing to take care of the independent workforce with regards to IR35. We do not believe reform is a fair, nor necessary way to stamp out what the Government claims to be widespread tax avoidance from contractors.”

Employment status review planned.

In addition to an IR35 consultation, a review of employment status rules has been penciled in for 2018. Complex employment legislation has made it difficult for all parties involved in setting IR35 status to accurately differentiate between a contractor, an employee and more recently a gig economy worker.

High profile Uber and Deliveroo cases has shone a particularly public light on the failings of current employment status rules, emphasising the need for an in-depth review.

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VAT threshold to remain for two years.

Rumours were also circulating with regards to a change to the VAT threshold. However, The Chancellor stood firm and revealed the Government will keep the VAT threshold for the next two years. This means freelancers and contractors do not have to register or pay VAT until they turnover £85,000 or above.

The thinking behind this is to ensure that only the higher earners will need to register, pay and charge VAT on transactions.

Crackdown on big business tax avoidance.

95% of freelancers and contractors recently stated they expect the Government to do more with regards to the tax avoidance of big businesses. With recent outrage over the Paradise Papers, any move to target large international corporations from avoiding paying UK tax will be welcomed by independent workers. That said, in the past promises to do so have not materialised. 

Personal allowance and higher tax threshold increase.

The amount of money anyone – employed or self-employed – can earn without paying tax will rise by £350 to £11,850. In addition to this, the higher rate tax threshold will as also increase from £45,000 to £46,350.

While widely welcomed by freelancers and contractors, they would have no doubt preferred for the Government to re-examine incoming cuts to tax-free dividends, which were slashed from £5,000 to £2000 in last year’s Budget.

£500m pledged to 5g, fibre broadband and AI.

Remote and independent workers all across the UK are in desperate need of better connectivity, from mobile coverage through to super-fast broadband. That the Government recognise this, and also plan to improve internet speeds and connectivity on various train lines is an important step in the right direction.

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Making tax digital (MTD) unchanged.

The 'Red Book' indicated that we remain on course for the full roll out of Making Tax Digital for April 2019, the date on which every UK business will be required to submit their taxes online and in real-time.

In conclusion, this Budget was a much needed improvement on last year’s, but only because there were no huge negatives for freelancers and contractors. And while we should be pleased IR35 reform has not been extended to the private sector, there's nothing to suggest that the Government is not planning to extend changes in the future.

Are you feeling positive about the Budget?

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How confident are freelancers about their business?

Words, hubbul

You could forgive independent workers for suffering a crisis in business confidence. 2017 so far has arguably been defined by Brexit uncertainty, changes to IR35 in the public sector and mounting speculation that reform to this confusing tax legislation will reach the private sector too. 

Just published IPSE research suggests that despite a gradual increase in freelancer and contractor confidence in Q3 compared to Q2, independent workers’ optimism surrounding the economy and their own business remains relatively low.

Government policy and Brexit impacting confidence.

Freelancers are strong in their belief that their business prospects are being hampered by the Government’s policy decisions impacting the self-employed, which include Brexit and regulation changes to hiring freelancers.

75% believe Government policy is having a negative effect on their business prospects, while 67% think their business performance is being impacted by recent and potential changes to IR35. Unsurprisingly, 57% see Brexit as a contributing factor.

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Reputation and collaboration driving business performance.

Freelancers have identified the importance of establishing a brand and building their personal reputation, with 63% confident it will enhance their business performance. 49% of freelancers believe collaboration with other independent professionals who share complimentary skills is important, while 48% are confident that providing innovative services and solutions to clients will improve their business. 

Business costs to rise?

Just 2% of freelancers expect business costs to fall, compared to the 82% who expect them to increase by anything up to 11%. 16% expect no change in costs associated to running their company.

Day-rates drop, but sit higher than 2016.

In Q2 of 2017, freelancer day-rates had increased by 5% since the beginning of the year. These gains have been lost in Q3, with a 7% decline. That said, freelancers’ and contractors’ average daily earnings still sit at £489 – a figure up £86 compared to Q3 in 2016.

Freelancer capacity falls, but remains high.

Despite being slightly down on Q2, freelancers’ capacity sits at 80%, a figure up in comparison to this time last year. This means eight out of ten contractors are working 10.4 weeks out of a possible 13 in one quarter. IPSE suggest that the availability of contracts has perhaps fallen in more highly skilled and better paid positions, and increased in the lower paid freelancer roles.

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As a result, earnings drop.

Low business confidence has no doubt influenced a fall in freelancer earnings, as their day-rates decrease and capacity drops off. However, it's worth bearing in mind that compared to Q3 2016, earnings are in fact up by 30%.

Economic confidence improves but remains negative.

Unsurprisingly, freelancers’ economic confidence sits critically low. Since the result of the EU referendum, independent workers have shown little optimism surrounding the economy. Despite economic confidence increasing marginally from -34.0 to -20.4, a large majority of freelancers are bracing themselves for the UK economy to worsen in the next three months.

Freelancers and contractors are clearly concerned about the current forces at work which are now impacting their business. As we head into the final 6 weeks of what has been a turbulent year, perhaps it's time for the Government to truly consider the implications of policy changes aimed towards the UK's independent workforce.

How confident are you with regards to your business prospects?

 

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Is it time to fix pensions for freelancers and contractors?

Words, hubbul

Without the benefit of employer pension contribution, UK freelancers and contractors must make their own plans when it comes to preparing for their retirement.

The state pension, which the self-employed are entitled to, amounts to around £160 a week, nowhere near enough to allow many independent workers to live the life they aspire to when they finally stop working.

And increasingly, the self-employed are looking at alternative ways to save for their futures. Research from the Pensions Policy Institute (PPI) has revealed that just 18% of independent workers believe pensions are the safest way to save for retirement. At 53%, more than half would prefer to invest their money in property, which they believe is a safer and more profitable method of saving.

But for many self-employed people, particularly the younger generation, buying property is proving difficult. The UK housing crisis combined with the difficulty freelancers face securing mortgages makes this hard to do. 

PPI research points out that there is a stark difference between self-employed millennials who do not believe they are saving enough, and the older generation of freelancers who typically own property and don’t expect to rely on income from their private pension pots.

21% of the self-employed are confident financial savings are the best way to prepare for retirement, while 7% simply aren’t sure how or where to make the most of their money.

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With just 12% of self-employed people saving into a private pension scheme, freelancers and contractors are falling behind their employed counterparts when it comes to building a healthy retirement fund. Despite freelancers and contractors typically catching up with employees’ retirement savings in later life through property wealth, it’s clear the current pension system doesn’t quite work for the self-employed.

PPI recently explored ways to make pensions for the self-employed an altogether more attractive and lucrative way to save for tomorrow. 

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One possible way to increase the number of freelancers saving into pensions would be to extend the successful features of automatic enrolment to include the self-employed. PPI put forward the case to consider making it a legal requirement to contribute a minimum amount each month. This could apply to sole company owners such as freelancers and contractors, and out to organisations who employ others but still work self-employed.

This would be more suited towards millennials who – by their own admission – are not saving enough for their retirement. However, there are fears that any move to enforce this would act as a barrier to self-employment and restrict freelancers’ financial freedom and choice.

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Maintain existing workplace pensions.

A second possible avenue to consider would be to maintain contributions into a workplace pension if, for example, an individual leaves the workplace to go self-employed. This would only work for one time employees with a workplace pension however – which would then be converted into a personal pension once the individual has gone solo. 

Given freelancers’ general reluctance to save into personal pensions as it is, PPI fear the take-up would be low with independent workers unhappy about this being made compulsory.

Create better alternative products.

PPI’s third and final policy option outlines the need for a greater number of alternative products that facilitate long-term saving. These might not even necessarily be specific pension schemes.

ISAs are considered smart ways to save for your future. Save £4000 a year in the newly introduced Lifetime ISA (LISA) until you’re 50, and the Government will contribute £1000 per year to your savings – which acts in a similar way to tax relief on pension contributions.

Given a collection of alternative products already exist, the charges, eligibility and accessibility of them would need to be carefully considered if they were to be promoted as a pension alternative and not just another method of saving.

It’s estimated that nearly 3million of the UK’s 4.8million self-employed people do not currently save into a pension. With the independent workforce consistently growing, it's clear the time to re-evaluate pensions for freelancers and contractors is now.

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