Last night the Chancellor Rishi Sunak announced the Self-Employed Income Support Scheme. The scheme for the self-employed is intended to mirror the support for employees previously announced.
Self-employed people, including partners in a partnership, whose business profits have been adversely affected by the pandemic will receive taxable grants amounting to 80% of average monthly profits over the last three tax years, capped at £2,500 per month.
This will be for a period of three months from 1 March 2020 initially, but will be extended if necessary.
Heather Okines of Fairbook explains, “Self-employed workers can continue to do business and remain eligible for grants. This is in contrast to furloughed workers who cannot carry out any employment duties while on their leave of absence. They must be trading at the point the application is made and intend to continue trading in 2020-21.
“The scheme is targeted at those who need it the most. So, it will only apply if:
- Average profits do not exceed £50,000;
- The majority of the taxpayer’s income is from self-employment (either in 2018/19 or on average over the last three years); and
- The taxpayer reported self-employment income on their 2018/19 tax return.
“The Chancellor has stated that for those taxpayers without a three-year history of profits, the average will be taken of the data that is available, i.e. potentially one or two years.
“However, there is no support for those recently self-employed who started in business after 5 April 2019 because they have not yet filed any tax returns so no data is available in “the system”. Those traders will have to rely on the previously announced enhancements to the welfare system or loan schemes, which means that some potentially more vulnerable workers with businesses in their infancy are left entirely out of this support scheme.
“The measures will support 95% of self-employed workers, with the majority of those not supported having average earnings of £200,000.
“The announcements are one thing but what we all really need to know is when will the cash be available. The scheme will be administered automatically by HMRC – but it is “operationally complicated” and they are currently working to set up the scheme for employees! In addition, the Chancellor is giving all workers who still have not filed their 2018/19 tax returns four weeks from today to file, so that they can be eligible for the scheme. If you otherwise qualify for the scheme and have not filed your return for 2018/19 yet please contact us urgently!
“Because of these factors, workers can expect to be able to make their claims no later than 1 June 2020. HMRC will be contacting eligible taxpayers directly with an application form to complete to make the claim. In the intervening time, we recommend that you take advantage of the Coronavirus Business Interruption Loan Scheme and the ability to defer 31 July 2020 tax payments on account to 31 January 2021.
“As a final sting in the tail Mr Sunak said that as all are now benefiting equally from an unprecedented level of government support, all should contribute equally in future. This sounds like a thinly-veiled reference to a future equalisation of tax and National Insurance between the employed and the self-employed – but the Chancellor refused to be pushed to give details.
Currently the self-employed pay a lower rate and are exempt from the 13.8% contributions made by employers. The Chancellor has said this will need to change in the future, now that the state had been so generous.
With this in mind we would be wise to start factoring this into cashflow forecasts from June onward, while also bearing in mind it is very possible they may request retrospective payments.
Richard Harris – Chief Legal Officer at global recruitment consultancy Robert Walters Plc has further comment:
“The Chancellor’s announcement offers a package of support for vast swaths of the self-employed and freelancer community.
“This is Keynesian – a new “New Deal” but with self-employed rather than big industry, and underlines the massive importance of the Gig Economy to UK PLC – and as the Chancellor put it “righting the ship”. This is a lifeline for many.
“However, Rishi Sunak is focusing on helping those least likely to weather the storm. The self-employed making profits of over £50,000 will not be part of the scheme. This will adversely affect those in white-collar professional jobs.
“Perversely, those putting large amounts of expenses against their income – who are on the cusp of this threshold – may be inadvertently better off.
“Rishi Sunak was quick to point out that many of these excluded self-employed who earn over £200,000 per annum. There will still be some who float just above the threshold who may not be pleased with the outcome. “Rishi Sunak could have implemented a more complex and graduated system to help these individuals. Still, I believe the Chancellor has gone for simplicity, and quick-delivery rather than trying to save everyone – its triage and the Chancellor is unapologetic about this stance.
“There was also a warning – or at least the hint of caution – for the self-employed. From Rishi Sunak’s “observation” as to the fairness in the differential in tax between PAYE and the Self-Employed, he may well be looking for those who are being bailed out to pay the ferryman for a journey across the swirling waters.
“The controversial new off-payroll rules (IR35) due to come in April 2020 are already delayed for 12 months could be a temporary reprieve. I would personally like to see a fundamental rethink around IR35 and what it is to be self-employed in the 2020’s.
“Those changes created a colossal burden on business and a lack of clarity for individuals. Surely with Rishi’s dynamism, we can do better?
“Finally, there was nothing about Agency Workers who are technically self-employed although on the PAYE system. This group contains some of the most vulnerable individuals, including those on zero-hour contracts. I am hoping and expecting these people are included when the detail of the Job Retention Scheme is announced.”