New research from the Association of Independent Professionals and the Self-Employed (IPSE) suggests that contractors are lowering their day rates and working more to mitigate the impact of coronavirus disruption.

The study also points to rising concerns about the government’s tax policy, including upcoming changes to IR35 in the private sector.

New research from the Association of Independent Professionals and the Self-Employed (IPSE) suggests that contractors are lowering their day rates and working more to mitigate the impact of coronavirus disruption.

The study also points to rising concerns about the government’s tax policy, including upcoming changes to IR35 in the private sector.

At face value, the trade body’s quarterly ‘Confidence Index’ shows that contractors earned roughly the same in the final quarter of 2020 compared to the quarter before.

However, looking more closely, we see that contractors actually worked an extra week on average and cut their day rate by an average of £16, meaning they worked more for less in the last three months of the year.

The biggest day rate cuts came from associate professional and technical freelancers - including designers and technicians - who dropped their average rate from £254 to £232. Managerial freelancers cut their average rate from £555 to £526.

Across the quarter, the average number of weeks without work dropped from 5 to 4.3.

Professional freelancers, associate professional freelancers and technical freelancers all worked more in the final quarter of the year, while managerial freelancers had more time out of work compared with the previous quarter up from 5.3 weeks to 5.7 weeks. This means they cut their day rates and also worked less.

The Confidence Index also showed that while confidence in freelancers’ businesses and the wider economy was on the increase, concerns about IR35 and broader tax policy were growing.

For the first time since March 2020, managerial and professional freelancers said that the government’s tax policy was a bigger problem for their business than the pandemic. 

Chloé Jepps, Head of Research at IPSE, said: “The last Confidence Index of 2020 shows [that] the average freelancer was working more for less. This is because, when they were more able to work before entering this renewed lockdown, they were cutting their rates to competitively scoop up as much work as possible. It is a worry that this could translate to a longer-term downward trend in freelancer day rates.

“Concerning, too, is that unlike the rest of the sector, managerial freelancers did not see an increase in work even before this lockdown. While others cut their day rates to get as much work as possible while the going was good, for managerial freelancers, the going never got good.”

Miles Grady, Director Umbrella.co.uk, said: “For the first time in nearly a year, parts of Britain’s contractor population is saying that government tax policy – not coronavirus – is having the biggest negative impact on their businesses. Taken as a positive, this could mean that the business impact of the pandemic is beginning to wane, but it could also mean that more contractors are starting to wake up to the realities of government tax changes.”

For more information about government tax changes, including IR35, speak to a member of the team today. Call: 0800 121 6513.