Freelancers forced to lower their rates in Q4 2020

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Date: 16 February 2021

A female freelance works on her laptop

The latest quarterly Confidence Index from freelancer body IPSE has found that freelancers have had to work longer hours for lower rates of pay in order to keep their income stable.

The new research by the Association of Independent Professionals and the Self-Employed (IPSE) has found that, in the last quarter of 2020, freelancers cut their day rates by an average of £16 but worked almost one extra week compared to the previous quarter.

The sharpest cuts in rates were among professional and technical freelancers, who dropped their average day rate from £254 to £232. In addition, managerial freelancers dropped their average rate from £555 to £526.

Across the sector, the average number of weeks without work in the fourth quarter of 2020 dropped from 5 to 4.3. This was driven by professional freelancers, who had almost one less week without work (3.8 down from 4.5), while associate professional and technical freelancers had 3.9 weeks without work - down from 5.3. However, managerial freelancers had more time without work (5.7 weeks, up from 5.3 weeks) in the last quarter of 2020.

These results show several concerning trends for freelancers. "First and foremost, the average freelancer was working more for less, said Chloé Jepps, IPSE head of research. "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."

IR35 tax changes

The Confidence Index also shows that while confidence in freelancers' businesses and the wider economy was rising at the end of last year, concern about the upcoming changes to IR35 self-employed taxes were also increasing. In fact, for the first time since the beginning of the pandemic, managerial freelancers and professional freelancers (the two highest-skilled freelancer groups) have cited the government's tax policy as having a worse negative impact on their business than the pandemic.

"Managerial freelancers - along with professional freelancers - are one of the groups that will be most affected by the changes to IR35 due in April," said Jepps. "It is indicative of the damage these changes will do that, for the first time since the beginning of the pandemic, managerial and professional freelancers said that government tax policy - not coronavirus - is having the most significant negative impact on their businesses.

"Altogether, these worrying trends are a sign that now more than ever, freelancers need better government support and protection - not the threat of tax rises and damaging structural tax changes."

Commenting on the findings, Xenios Thrasyvoulou, founder and ceo of PeoplePerHour, said there is a "legitimate concern by many self-employed consultants and freelancers regarding the government's lack of clarity and protection with the fast approaching IR35 regulations".

However, on a more positive note, he also predicted that "the increase in demand for remote online freelance services by medium to large businesses … is unlikely to wane in the coming months."

Written by Rachel Miller.