One million freelancers and contractors have been pushed into debt because of the Coronavirus crisis, research finds

According to a report, titled ‘The cost of Covid: How the pandemic is affecting the self-employed’ published by Starling bank and trade body IPSE, 1 in 4 UK freelancers and contractors (roughly 1.05 million) have taken on credit card debt to get by this year. 

A further 1 in 7 (14%) self-employed people have used their overdrafts and more than a quarter (27%) said they have used up their savings. As a result, a fifth (18%) admitted they would need to borrow money in order to pay their upcoming tax bills. 

The report attributed the rise in freelancer debt partly to a lack of government support during the pandemic.

The research also showed that only a third (33%) of sole traders were able to access the Self-employment Income Support Scheme (SEISS), while just over a fifth (22%) of limited company directors said they had accessed the Coronavirus Job Retention Scheme.

Women encounter late payment more than men

An increase in late payments was also found to have contributed to pushing freelancers into debt – particularly women. More than a third of those surveyed (36%) said instances of late payment had risen during Coronavirus, with more than a quarter (28%) having been paid late by a client during the pandemic.

According to the study, 67 per cent of women encountered late payment compared to only 52 per cent of men.

Aside from lack of government support and late payments, contractors have faced a number of other huge challenges in 2020. Previous IPSE research revealed the demand for freelance work had significantly fallen (by 69%) and there has also been a steep decrease in average earnings (25% drop in Q2 2020), resulting from the Coronavirus.

The combination of these factors has led to the surge in freelancer debt, with many struggling to survive financially – one in six (17%) said they had no money left to cover work-related expenses or basic living expenses (15%).

Chloé Jepps, head of research at IPSE, said: “This research shows in detail the drastic and deeply concerning impact the Coronavirus pandemic has had on freelancers’ finances. In particular, it shows how its effects are likely to last for years to come, as many freelancers have burned through their savings and turned to credit cards and borrowing to get by.”

Government must address gaps in support

“The government has rolled out some support for the self-employed, but it must urgently look at ways to make this more flexible and fair – to ensure it reaches all self-employed in need. 

“It should also look at new and longer-term ways to address the freelancer financial crisis: particularly the damage done by late payment and the disproportionate taxes still hanging over many struggling self-employed.”

Jane Tully, director of external affairs at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, added: “At Business Debtline we continue to hear from people whose incomes have fallen off a cliff and are struggling to meet essential business and personal costs as a result.

“While the government’s package of support measures for self-employed people and small business owners has provided a much-needed financial lifeline for many, gaps in this support remain.”