During the final quarter of 2018, the self-employed sector faced a controversial shakeup in employment legislation, changing the way contractors operate in the private sector. Party leaders battled over a potential Brexit deal and the prospect of a no deal, clouding the economic landscape with uncertainty.
With around two million of the overall self-employed community in the UK being freelancers, we take a look at what happened in 2018 and the impact it will have on freelancers this year.
What happened during 2018 for freelancers?
Autumn Budget Statement - Notable events include the Autumn Budget Statement which took place on 29th October, unveiling a major change in the way contractors interact with private sector contracts.
No Confidence Vote - On 12th December, Theresa May survived a confidence vote in her leadership of the Conservative party after securing 63% of the total vote. The vote was called following outrage from MPs towards her Brexit policy.
Christmas Trading - 2018 concluded with the wind down of Christmas trading which accounts for fewer working days for freelancers.
A closer look
The Association of Independent Professionals and the Self-Employed, IPSE, conducted a quarterly confidence survey with People Per Hour to gauge the attitude of over 500 contractors and freelancers towards business performance and their confidence in the UK economy. The timeframe in which participants were surveyed spanned through September to December 2018. Here's a closer look at how what happened in 2018 affected morale.
The Brexit Deal dilemma
Confidence in the future of the business sector and the UK economy dropped as a result of the EU referendum. Speculation of a Brexit no-deal or a replay of the Brexit referendum was high up on the news agenda during Q3 which directly played with freelancer confidence. This was also caused by a lack of information being readily available around the UK’s strategy as an international trader following its exit from the single market.
There are currently 2.28 million EU citizens working in the UK, representing seven per cent of UK’s total workforce. Many contractors also travel to Europe to work on overseas contracts. As a result of Brexit, it was recently announced that EU nationals residing in the UK will be required to apply for ‘settled’ or ‘pre-settled’ status under the. EU workers making applications will be deemed eligible based on their tax and benefit records. Awaiting status confirmation could cause another stir in confidence prior to the deadline in 2021.
With Brexit negotiations underway, it has been confirmed that free movement will remain intact during the transition period which ends in December 2020. Free movement allows UK nationals to travel, live and freely work across Europe, including access to benefits, such as healthcare and education.
IR35 reform in the private sector
In Q2, Brexit was the first factor negatively affecting business performance, overtaking government policy. In Q3, government taxation policy overtook this factor as driving down business performance (58.6%), when compared with the EU referendum (56.1%).
During the Autumn Budget statement, the Chancellor announced a revision in government fiscal policy, changing the way the employment status of private sector contractors will be determined, which ultimately affects tax treatment. The IR35 reform in the private sector will come into force in April 2020 and will impact anyone working on a private sector contract for a medium to large business. As a result of the reform, the hiring body will be responsible for determining IR35 status, not the contractor as it currently stands.
If you’re caught under IR35, you will be taxed as PAYE, so National Insurance Contributions and Income Tax will be deducted from pay. This could affect the operating structure contractors decide to use in order to maximise 'take home pay' which may lead to a rise in the use of umbrella companies.
Despite an eventful final quarter in 2018, there are some who believe the self-employed sector is expected to tap into new markets and experience a steady increase in day rates to recover losses from last year, as found in IPSE’s ‘survey. Similarly, the latest figures show that there are around five million self-employed professionals in the UK, having increased from 3.3 million in 2001 to 4.8 million in 2017.
As these studies show, the number of freelance professionals in the UK is expected to rise despite the IR35 private sector reform and the EU referendum, thanks to freelancers' resilience and innovation in the face of uncertainty.
About the Author
David Tattersall is Head of Client Relations at Handpicked Accountants. Handpicked Accountants identifies the most reliable, reputable and experienced accountants across the UK, helping you narrow your search on a local level for the accountancy services you require. David is instrumental in handpicking the very best accountants in the UK to help you make an informed choice.