Recent report cites “exodus of self-employed”, with IR35 one of many factors to blame
With half a million fewer self-employed operators in the UK than there were in the years before the pandemic, the government is being urged to show its support for the sector in the Budget this month.
As reported by Business Matters magazine, which explored the latest business population statistics from the Department for Business and Trade, this decrease has been partly attributed to a “sharp decline” in the number of self-employed operators.
Labelling it “an exodus of self-employed individuals and one-person companies”, Business Matters said the numbers of this group had fallen by 11% in the last five years. This means that the total number of private sector businesses in the UK fell to 5.5m in the year leading up to 2024, down from the peak of 6m at the beginning of 2020.
The report cites several factors, including HMRC’s “clampdown” on limited company contractors and consultants due to the “IR35 tax rules”. “Delays in government support for the self-employed” during the first, and subsequent, COVID-19 lockdowns, were also cited as another prominent cause.
Off-payroll working rules impact contractor numbers
The latest figures are also in stark contrast to the period 2010-2020, which saw a “rapid rise” in the number of self-employed operators and one-person consultancies, according to Business Matters.
In this period, “self-employment accounted for 80% of the growth in the total business population”, with around 793,000 limited companies incorporated in the last ten years, compared to just 323,000 new sole traders.
This growth in contracting spurred the introduction of the off-payroll working rules, which were introduced in the public sector in 2017. Their introduction to the private sector was delayed, however, as a result of the COVID-19 pandemic – during which time contractors were excluded from access to the Self-Employment Income Support Scheme (SEISS).
“Disappointing” figures a warning for Chancellor ahead of Budget
Responding to the publication of the figures, business experts from leading industry bodies – including the Federation of Small Businesses (FSB) and the British Chambers of Commerce – expressed concern.
Tina McKenzie, Policy Chair at the FSB, called them “disappointing”, and questioned where these “missing small business owners” had gone. She also queried the impact these business failures have had on local economies.
Speaking to The Times, Johnny Haseldine – Policy Manager at the British Chambers of Commerce – said the latest statistics shone a light on “the challenging economic conditions many firms are still facing”.
Haseldine also suggested that the Chancellor, Rachel Reeves, will be under pressure to address the constraints facing the self-employed sector, including through measures such as business rates reform.
Why the great surprise in this news – if you’re a 1 person business in this country you’re viewed as a pain and subsequent governments have done nothing – absolutely nothing to encourage small businesses just tax them to the hilt. I know recent uncertainty in the market (election and then the budget) has caused many of my colleagues to give up – IR35 is a huge impact as well as ever increasing taxes and the view the self-employed are just freeloaders. The market at the moment reflects business confidence and that confidence has been shattered with the effect that employers are lowering their day rates being ultra picky and more demanding of skill sets. The whole market is in a mess with very skilled people out of work for 6 to 12 months and more – so well done to the IR35 acolytes, governments etc.. – you’ve created this mess and I can’t see the current government doing anything about it.
This is what HMRC intended so do not expect any sympathy.
Time to close the door on bringing in overseas workers in the I.T. arena.
To many UK skilled people on the market and to many overseas agency staff being allowed in.
If we do not earn it how are you going to tax it ?
IR35 the exact opposite of support for the sector.
The sole purpose of the Gestapo finance wing is to make it as difficult as possible for contractors and the self-employed, so that as many as possible are dragged into being employed so they pay the full whack of tax and NI.
Draconian and punitive legislation has been dreamed up and forced through parliament such as IR35 and (retrospectively) the Loan Charge.
It’s simply not worth the hassle starting your own business or being self-employed now in the uk. Which is exactly what HMRC have always wanted to do.