Contractor confidence returned to positive territory at the start of 2022

Contractor confidence is improving and turned positive at the start of 2022.

But the return to optimism was confined to how contractors rate their prospects for the next three months only.

Nonetheless, short-term faith in their own single-person ventures improving to +2.2 from --11.0, represents the first positive contractor confidence reading since Q2 last year.

And all three main categories of contractor reported the feeling of more confidence in their prospects, said the Association of Independent Professionals and the Self-Employed (IPSE).

'Highest inflation in 40 years hit just after our survey'

But the association’s policy director Andy Chamberlain conceded yesterday that an economic cloud was on the horizon when it polled the contractors – and it is firmly overhead now.

“Since we surveyed contractors on their confidence, inflation has risen to 9.1% -- the highest level in 40 years,” Mr Chamberlain told ContractorUK.

“We therefore suspect that such freelancers are even more worried about the state of the UK economy now, than they were in Q1.”

'In the red'

Even back in January-March, the contractors were firmly negative about the economy, with their three-month fiscal outlook charting at a sombre –23.1, versus --23.7 in Q4.

Their 12-month outlook is even gloomier, as it plummeted to –27.4, from –19.1 in the final three months of last year. 

This finding from IPSE indicates contractors may have sensed the long tail of inflation back in January, as the 12-month forecast for their own firms was also rooted ‘in the red.’

'Financial issues other than inflation worrying the self-employed'

So at odds with their outlook for the next three months for themselves returning to positive territory (+2.2), their confidence outlook for the next 12 months was just –1.9.

That represents a big recovery from (–10.5 back in Q4), but Mr Chamberlain isn’t surprised that contractors don’t see their businesses weathering the economic storm in the long-term.

He told ContractorUK: “Self-employed workers are still worrying about other [financial] issues such as rising business costs, and debt, following the rise in energy prices and household bills.”

'Contractors very concerned about cost of living crisis'

Last week, a Qdos poll showed 63 per cent of respondents as “very concerned” about rising inflation and/or the higher cost of living, with only 3 per cent ticking “not concerned at all.”

“By and large, freelancers and contractors are very concerned about the cost of living crisis,” Qdos chief executive Seb Maley said of the LinkedIn poll of more than 240 users.

He added: “The government would be wise to take note of insight like this – and I’m sure there’s a lot more of where this came from too.

“With inflation sitting at 9.1%, its highest rate of 40 years, and self-employed workers recovering from the pandemic -- and battling a raft of tax reforms -- is it not time the government changed tack?”

'Rethink contractor taxation'

An IR35 contract reviewer, Mr Maley spoke of the government potentially need to ‘rethink’ contractor taxation, and to consider “sector-specific” support for freelance professionals.

The IPSE findings indicate such support could be overdue.

When quizzed at the start of this year, almost four in 10 of the contractors admitted to being in business debt, up marginally from those in arrears in Q4.

'Financial uncertainty'

Separately, but in line with the increase since then in financial headwinds, an accountancy firm says it now offers a service which has nothing to do with accounting.

“During these times of financial uncertainty,” said the firm, NumberMill, “we have seen an increase in requests for credit control support…so [such support] is now available as a stand-alone service.”

According to IPSE, the majority of freelancers (86%) expect their input costs to increase over the next 12 months – up from 81 per cent in Q4 2021.

The hope appears to be that clients will oblige given that, when asked in Q1, the contractors said they expected their rates to increase by an average of 13.5% over the next 12 months.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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