Coronavirus: What could be done for the self-employed?
In the absence of a government package to help the self-employed through the covid-19 crisis, Heather Self has come up with a workable plan.
The package announced by the Chancellor, Rishi Sunak, on 20 March included some significant measures to help employees – including, in particular, the job retention support scheme. Although further guidance is still needed on the detail, it is clear that this will enable many employees to be “furloughed” on 80% of salary while the crisis continues, with the government funding this up to a maximum of £2,500 per month.
Not surprisingly, the self-employed want similar help to be made available to them too, but this is proving much more difficult. On 24 March Sunak confirmed that a package was being worked on, but nothing for the self-employed has yet been announced.
So why is it so difficult?
Many people have suggested some form of universal basic income (UBI) – just make a payment of £2500 a month to everyone who completes a self-assessment return, through their tax account which is used to make their self-assessment tax payments.
Sadly, this is just not possible in the short term. HMRC do not have enough information to do this quickly and accurately. While it might be the ideal solution in the longer term, it’s not a practical way to get funds out in the short term. The job retention scheme uses the existing PAYE scheme so that employers can initially bear the cost and then reclaim from HMRC, and even that is not without its challenges.
Another problem is that the self-employed population, and their earnings, are much more volatile than those who are employed. The IFS has calculated that many people move in and out of self-employment, and that average self-employed earnings are relatively low.
There are also those who have a “hobby” self-employment – perhaps selling some goods on eBay, generating £2,000 a year of profit, alongside a full-time job paying £25,000 a year. Should someone with a modest amount of self-employed income get the same grant as someone for whom their business is their only source of income?
Impacts of covid-19 will also vary widely across sectors. Those who are in the leisure or entertainment industry will be hit very hard (although some may be able to continue giving classes online), tradesmen such as plumbers and builders may either have no work or plenty, partners in city law firms may even see an increase in their income as businesses need legal advice on a whole range of issues. Some barristers, on the other hand, may see their income fall almost to zero as the courts suspend hearings.
It is a very complex picture, and designing something which is robust and fair is not easy. The measures announced so far are mostly about deferment of tax (VAT payments and the self-assessment payment due on 31 July), supplemented by loans. But that does not help those whose income has dried up completely and who need help now, and who are worried about how any loans could be repaid.
What could the Chancellor do?
In my view, the Chancellor should take short term steps to get some cash to the self-employed as fast as possible, to give a breathing space while a longer-term solution is put together.
I would suggest a tax-free cash grant of £5,000, or if lower, the average amount of self-employed income declared in the last three years. This would (broadly) match the support offered to employees for the next three months (£2,500 gross for three months is close to £5,000 net over the period).
The grant could be claimed in the 2019/20 tax return and so would effectively be given on 31 January 2021. Using the tax return process would enable HMRC to audit the amount of grant claimed, in due course, using routine enquiry procedures.
But of course, this doesn’t get cash to the self-employed immediately. However, if they know they will get a grant in nine months’ time – and they can calculate the amount by reference to tax returns they have already filed – they can safely take out or increase the emergency loans which are on offer, knowing that the grant will be available to repay that element of the loan in nine months’ time.
More help needed
Many self-employed will need more help than this, and I hope the Chancellor is working hard on a more comprehensive package. You may say that £5,000 is not much help given the scale of the drop in income that many are facing, but it would, in my view, be a fair and reasonably robust short-term response to the problems they are facing.
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Heather joined Blick Rothenberg as a partner in the corporate tax team in January 2018.
She has over 30 years’ experience, most recently as a partner at Pinsent Masons and prior to that as the head of tax at a FTSE 100 company, an anti-avoidance adviser at HMRC and a partner at...