🇬🇧 Freelance Economy Spotlight 🇬🇧 

I’ve been living in the UK on and off for five years now and I’ve definitely learned a thing or two.

1. When someone asks “You alright?” they mean “Hey” and not “What’s wrong with you?” like most North Americans would assume.

2. That the freelancing and independent contractor space is complicated and hard to navigate with lots of legislative nuance. Tough, innit?

In the spirit of the UK’s 15th annual National Freelance Day this past week, let’s dive into some of the things that make this market unique.

Innovation & Investment

The UK is a bustling tech scene London is Europe’s biggest hub for GenAI with almost 30% of Europe’s new startups based here.

That being said, UK venture capital funding fell by almost half last year as rising interest rates and an economic downturn choked off cash flow into startups and tech firms.

Venture investment is said to have fallen to £16.1B in 2023, down from £28.9B in 2022.

Freelance Market & Size

Freelancing is fairly prolific in the UK with a growing market share of overall workers having conducted some form of freelance work within the past year.

Here are some facts and figures

• As of March 2024, there’s an estimated 4.25 million self-employed workers in the UK

• 64% of people freelancing in the UK are also employed (hello moonlighters and side hustlers)

• Solo self-employed sector contributed an estimated £331 billion to the UK economy in 2023

• £584 is the average freelancer day rate

Most popular skills

Based on keyword search volume research conducted in 2023, the most in-demand skills are

Adoption and Acceptance

Working in the UK

The prevalence of freelancing in the UK suggests that freelancing is a widely accepted form of work.

There has even been government recognition of the importance of freelancers in the creative industries and they are working to address challenges faced by this group.

While most people believe freelancing to be an attractive career option due to the freedom and flexibility, there is widespread fear of the complexities around tax and classification in the country. Government pension contributions, worker protections, and IR35 are hard to navigate, adding barriers to starting a solopreneur journey.

Hiring in the UK

Foreign companies hiring independent workers in the UK have to be very careful when hiring and be aware of whether a worker is “inside” or “outside” of IR35.

If someone is found to be “inside IR35” companies may be responsible for deducting income tax and National Insurance Contributions through the PAYE system.

The only way to avoid this is to

1. Satisfy HMRC’s “reasonable care” requirement

   Companies must take reasonable care when determining whether a worker would have been an employee if they were engaged directly. Keeping records of employment status principles, seeking advice of qualified advisors, amending new contracts, etc. They may use Oyster’s Classification Calculator, for example.
   
   OR
   

2. Use a 3rd party to always pay the contractor, even if you hire directly

   Using PEO (Professional Employer organization) or EORs (Employer of Record) like Deel, Oyster, Remote.com, etc. can reduce the liability of a worker being classified “inside IR35” even if these come with a significant markup on the contractor’s rates.

Many companies don’t want the risk of having to deal with the hassle and may blacklist hiring workers from the UK because of it.

IR35

What is IR35?

The IR35 rules are a significant aspect of the UK’s regulatory framework for contractors and freelancers. Also known as the “off-payroll working rules”, these rules were introduced to prevent tax avoidance by individuals who supply their services to clients via an intermediary.

These rules determine whether a contractor is genuinely self-employed or a "disguised employee" for tax purposes. The responsibility for determining IR35 status lies with the end-user client which can impact how contractors are engaged and paid.

Why does IR35 exist?

IR35 was implemented to attempt fairness in the tax system. Without it, some individuals could avoid paying their fair share of taxes by pretending to be self-employed when they are effectively working as employees. This legislation hopes to close that loophole and ensure that everyone contributes appropriately to public services.

The truth? It’s easier for governments to enforce tax compliance and withhold funds from a smaller number of large companies than a large number of independent workers. So it’s in the government’s best interest to have more people classified as employees than freelancers.

How does it work?

To determine whether a contractor falls inside or outside IR35, several factors are considered:

• Control: Does the client control how, when, and where the contractor works? More control by the client suggests an employment relationship.

• Substitution: Can the contractor send someone else to do the work? If they can, it indicates self-employment.

• Mutuality of Obligation: Is the client obliged to offer work, and is the contractor obliged to accept it? If so, this suggests an employment relationship.

• Financial Risk: Does the contractor take on financial risk, such as having to fix mistakes at their own cost? Financial risk is a sign of self-employment.

• Equipment: Does the contractor use their own equipment? Using their own tools and equipment suggests self-employment.

Practical Example

Imagine you are a freelance graphic designer. You set up a limited company and provide your services to a large corporation. If you work under the corporation's direction, use their equipment, and cannot send someone else to do your job, you might be considered "inside IR35."

This means the corporation must deduct income tax and NICs from your pay, just like they would for a regular employee. If you have multiple clients, use your own equipment, and have the freedom to work as you choose, you might be "outside IR35," allowing you to manage your taxes more flexibly.

Associations Spotlight - IPSE

IPSE, The Association of Independent Professionals and the Self-Employed, is the UK’s only not-for-profit association dedicated to the self-employed.

Originally formed as a protest organization against the IR35 tax legislation, it has evolved into much more than that. It now serves as a genuine support system for the self-employed, offering them resources, protection, a community, and a voice.

The IPSE manifesto supports the “courage economy” with the following aim:

Platform pals in the UK

• Freelancer Club - Members of Freelancer Club gain access to masterclasses, resources, community, and jobs to build a sustainable freelance career.

• Underpinned - Underpinned has upskilled over 50,000 freelancers and offers freelance business management software.

• Gigged.AI - A tech skills talent marketplace that offers both a global and internal talent pool option.

• Distributed - The Distributed Talent Cloud supports delivery with teams of tech talent to tackle software problems.

• GiigHire - Giig is the first freelance recruiter marketplace and free recruitment software platform for freelance recruiters.

Reading list

• London is Europe’s biggest hub for generative AI (Euro News)

• Self-Employed landscape in 2023 (IPSE)

• IR35 Spotlight 2024 (IPSE)

• A guide to taxes for UK Freelancers (Know Your Dosh)

• PEO or EOR: which is right for your organization? (Velocity Global)

Add to the series. Tell me more about your country and the local freelancing landscape!