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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. 

25th Mar 2020
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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.

Replies (22)

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By Open all hours
25th Mar 2020 12:32

Well done Heather. A day and maybe two in front of Rishi The Reluctant.
Our clients main concern is cash flow and the time it takes to obtain a loan secured against next January’s grant prolongs the agony.
On the other hand we have lost all confidence in the government due to continued lack of progress and continual use of the word complexity. You at least cut through some of it.
Thank you for your work on this tricky subject.

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Replying to Open all hours:
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By Rammstein1
25th Mar 2020 12:49

Rishi the Reluctant? How sad that you want to make a political point at this time. The 80% to employees probably won't kick in until the end of April so give them time to sort the self employed out.

As for saying you have lost all confidence in the Government, do you not know there is a pandemic? This should be a time for the country to pull together but you obviously missed that boat.

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Replying to Rammstein1:
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By Open all hours
25th Mar 2020 14:13

The Chancellor decided to divide the country last Friday. No political point made. Things would be so much worse under others but this simply is not good enough. And who said ‘F*** business in June 2018? Again not a political point. Statement of fact. Careless talk....

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Replying to Open all hours:
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By Rammstein1
25th Mar 2020 14:56

If you look on this site, there are numerous suggestions for the self employed, all with plus and minus points. Averaging three years profits has it's pros and cons as does a standard amount (someone compared a full time s/e person with someone on PAYE who gets £1,000 s/e profit per year). If it takes a couple of weeks to get a decent plan together, give the Government that time. Otherwise you will be moaning it is an half [email protected] plan.

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By Open all hours
25th Mar 2020 12:32

Well done Heather. A day and maybe two in front of Rishi The Reluctant.
Our clients main concern is cash flow and the time it takes to obtain a loan secured against next January’s grant prolongs the agony.
On the other hand we have lost all confidence in the government due to continued lack of progress and continual use of the word complexity. You at least cut through some of it.
Thank you for your work on this tricky subject.

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By the_Poacher
25th Mar 2020 12:33

Sadly returns for 19/20 and the software systems wouldn’t be changeable in time. So any system is likely to have to be separate from the normal return

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blue sheep
By NH
25th Mar 2020 12:58

I fail to see any merit in your idea sorry, take someone self employed with a couple of employees on furlough - the employer is having to fund those wages this week with nothing in place yet to claim it back. They are having to pay overheads now not in 9 months time! Its all very well to say, well at least they know that money is coming back to them, and well at least they can go out and get a loan - have you tried getting one of these loans?
Bonkers - back to the drawing board please

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By Justin Bryant
25th Mar 2020 13:51

AKA Helicopter Money. Needless to say, fraudulent claims will be fairly rife.

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Replying to Justin Bryant:
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By Wisey
25th Mar 2020 14:07

How so? you either pay everyone a basic amount or you try and pinpoint it, the latter takes time and resources both in short supply.
I would suggest there is a profit cap though something like the HICBC so it's recovered if income exceeds a ceiling say equivalent to say average median earnings.
Wonder how many people will now flock to register though.

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Replying to Wisey:
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By Justin Bryant
25th Mar 2020 15:26

Yes of course; a profit cap and a claw-back mechanism will kill dead any fraudulent claims.

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By ireallyshouldknowthisbut
25th Mar 2020 15:25

I am not convinced self employed SHOULD get a substantial bail out. For some sectors, perhaps, but certainly not widespread.

Most self employed will be taking a weeks holiday over Easter, and if you cant survive 3-4 weeks of downtime then you are playing a precarious game in the first place given anyone can be out ill or similar for a month at any time.

It seems to me that whilst there is going to be a lot of wailing and gnashing of teeth, most self employed people will just get on with it as they always do, and make good with what they can do, and invent new ways to make some £££ right now. There will also be extra demand for most services when we come out the otherwise. Eg if you are a hairdresser, all your customers are going to want a trim enmasse in 6-12 weeks, so you will probably be working 12 hour days to fit them in.

Lets face it, with mortgages deferred, shops shut, the fact you cant go out and spend any money, what have you got left to pay out for exactly?

I dont think its the role of government to featherbed those who have chosen the life of the self employed, which is all about ups and downs.

Its telling that my clients who have approached me about help have either (a) really in the mire [eg in travel] for which I have some sympathy, or are generally very entitled "me me me", like the client on £200k a year who didn't want to sell his stocks to pay for something. Poor diddums. Most responses are along the lines of "well at least my garden is going to look nice this year" and will get on with it.

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Replying to ireallyshouldknowthisbut:
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By AWeb72
25th Mar 2020 15:24

On that basis, why do the employed need any help then too? Shouldn't they all have savings?

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Replying to AWeb72:
By ireallyshouldknowthisbut
25th Mar 2020 15:29

Its a different mindset. If you are self employed and know your income can stop at any time, and have no notice period, sick pay or all the rest of it, you are a bit simple if you don't have some put aside. It doesn't matter if you are on millions or £10k a year. Employees are different, they have a lot more security in normal times.

Anyhow, the point of the above was to do some proper thinking about this, and not just assume everyone deserves a bail out. They don't. Throwing billions at people who would get by is not right when we still have rough sleepers and people using foodbanks and all the rest of it that we cant supposedly afford.

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By NeilW
26th Mar 2020 07:15

The chancellor will do what it takes, other than cross the ideological Rubicon and do what is required.

Which is to hire all spare labour at £10 per hour for a maximum of 35 hours per week. That could be setup with standard PAYE tools in no time, creating a BACS file to be passed to the Bank of England for payment. QE'ing workers hours rather than pointlessly QE'ing Gilts. Use a variation of the petition site code that captures an NI number and bank details as well. The petition site is designed to have millions of people hit it in one go - unlike the benefits system which has already gone over.

Once you do that you solve self-employed without clients, layoffs and redundancies at a stroke - without favouring big business with cash buffers. Furloughed businesses can be put on ice until the storm passes.

Plus it gives you an army of labour that you can direct to stay at home, or work in the NHS (or whatever) as required. And if you select the self-employed to go out there and do stuff, then they can't be doing other stuff behind your back (if that's what the chancellor is worried about - not that many would anyway).

And then after the month end you filter the list of NI numbers against HMRC records and any NI number that has received a payment of sufficient size via some other PAYE system you exclude. Which means the system automatically backs off as we recover from this.

It's the simplest thing that will work, that directly addresses the problem - a lack of wage flow. Instead we have complicated bureaucratic messes that won't address the cashflow issues for over a month if we're lucky. And all because the Chancellor won't take his blinkers off.

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By NeilW
26th Mar 2020 07:17

The chancellor will do what it takes, other than cross the ideological Rubicon and do what is required.

Which is to hire all spare labour at £10 per hour for a maximum of 35 hours per week. That could be setup with standard PAYE tools in no time, creating a BACS file to be passed to the Bank of England for payment. QE'ing workers hours rather than pointlessly QE'ing Gilts. Use a variation of the petition site code that captures an NI number and bank details as well. The petition site is designed to have millions of people hit it in one go - unlike the benefits system which has already gone over.

Once you do that you solve self-employed without clients, layoffs and redundancies at a stroke - without favouring big business with cash buffers. Furloughed businesses can be put on ice until the storm passes.

Plus it gives you an army of labour that you can direct to stay at home, or work in the NHS (or whatever) as required. And if you select the self-employed to go out there and do stuff, then they can't be doing other stuff behind your back (if that's what the chancellor is worried about - not that many would anyway).

And then after the month end you filter the list of NI numbers against HMRC records and any NI number that has received a payment of sufficient size via some other PAYE system you exclude. Which means the system automatically backs off as we recover from this.

It's the simplest thing that will work, that directly addresses the problem - a lack of wage flow. Instead we have complicated bureaucratic messes that won't address the cashflow issues for over a month if we're lucky. And all because the Chancellor won't take his blinkers off.

Thanks (1)
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By NeilW
26th Mar 2020 07:18

The chancellor will do what it takes, other than cross the ideological Rubicon and do what is required.

Which is to hire all spare labour at £10 per hour for a maximum of 35 hours per week. That could be setup with standard PAYE tools in no time, creating a BACS file to be passed to the Bank of England for payment. QE'ing workers hours rather than pointlessly QE'ing Gilts. Use a variation of the petition site code that captures an NI number and bank details as well. The petition site is designed to have millions of people hit it in one go - unlike the benefits system which has already gone over.

Once you do that you solve self-employed without clients, layoffs and redundancies at a stroke - without favouring big business with cash buffers. Furloughed businesses can be put on ice until the storm passes.

Plus it gives you an army of labour that you can direct to stay at home, or work in the NHS (or whatever) as required. And if you select the self-employed to go out there and do stuff, then they can't be doing other stuff behind your back (if that's what the chancellor is worried about - not that many would anyway).

And then after the month end you filter the list of NI numbers against HMRC records and any NI number that has received a payment of sufficient size via some other PAYE system you exclude. Which means the system automatically backs off as we recover from this.

It's the simplest thing that will work, that directly addresses the problem - a lack of wage flow. Instead we have complicated bureaucratic messes that won't address the cashflow issues for over a month if we're lucky. And all because the Chancellor won't take his blinkers off.

Thanks (0)
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By NeilW
26th Mar 2020 07:33

The chancellor will do what it takes, other than cross the ideological Rubicon and do what is required.

Which is to hire all spare labour at £10 per hour for a maximum of 35 hours per week. That could be setup with standard PAYE tools in no time, creating a BACS file to be passed to the Bank of England for payment. QE'ing workers hours rather than pointlessly QE'ing Gilts. Use a variation of the petition site code that captures an NI number and bank details as well. The petition site is designed to have millions of people hit it in one go - unlike the benefits system which has already gone over.

Once you do that you solve self-employed without clients, layoffs and redundancies at a stroke - without favouring big business with cash buffers. Furloughed businesses can be put on ice until the storm passes.

Plus it gives you an army of labour that you can direct to stay at home, or work in the NHS (or whatever) as required. And if you select the self-employed to go out there and do stuff, then they can't be doing other stuff behind your back (if that's what the chancellor is worried about - not that many would anyway).

And then after the month end you filter the list of NI numbers against HMRC records and any NI number that has received a payment of sufficient size via some other PAYE system you exclude. Which means the system automatically backs off as we recover from this.

It's the simplest thing that will work, that directly addresses the problem - a lack of wage flow. Instead we have complicated bureaucratic messes that won't address the cashflow issues for over a month if we're lucky. And all because the Chancellor won't take his blinkers off.

Thanks (0)
avatar
By NeilW
26th Mar 2020 08:26

The chancellor will do what it takes, other than cross the ideological Rubicon and do what is required.

Which is to hire all spare labour at £10 per hour for a maximum of 35 hours per week. That could be setup with standard PAYE tools in no time, creating a BACS file to be passed to the Bank of England for payment. QE'ing workers hours rather than pointlessly QE'ing Gilts. Use a variation of the petition site code that captures an NI number and bank details as well. The petition site is designed to have millions of people hit it in one go - unlike the benefits system which has already gone over.

Once you do that you solve self-employed without clients, layoffs and redundancies at a stroke - without favouring big business with cash buffers. Furloughed businesses can be put on ice until the storm passes.

Plus it gives you an army of labour that you can direct to stay at home, or work in the NHS (or whatever) as required. And if you select the self-employed to go out there and do stuff, then they can't be doing other stuff behind your back (if that's what the chancellor is worried about - not that many would anyway).

And then after the month end you filter the list of NI numbers against HMRC records and any NI number that has received a payment of sufficient size via some other PAYE system you exclude. Which means the system automatically backs off as we recover from this.

It's the simplest thing that will work, that directly addresses the problem - a lack of wage flow. Instead we have complicated bureaucratic messes that won't address the cashflow issues for over a month if we're lucky. And all because the Chancellor won't take his blinkers off.

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
26th Mar 2020 09:32

In a sequence that has begun to unravel Downing Street's stage management, Boris Johnson and his spokespeople have signalled very clearly that the self-employed rescue package will arrive at this afternoon's crisis press conference. The outline details leaked to the offical news outlet, The Sun, suggest:
- 2018-19 self assessment figures will be used as the main data point for income levels
- Support scheme will have an eligibility cap around £30k median income levels to target aid at the less well off
- It may take eight weeks before HMRC is able to channel cash to recipients.

Amid all the pleas of complexity, I'd question Heather's interpretation of the word "universal" . As a disinterested bystander, I've been watching debates about the universal basic income for a while and heard all the arguments about how it was impossible and economically disastrous. But it's potential has become much more relevant in the current circumstances.

Why not allocate a monthly figure to EVERYONE (less than £2500 a month) to enable them to eat, stay warm and pay for shelter, and balance the universal payment against increased taxes on those who are earning. The concept is simple - and appropriate to the hardships a lot of people are facing right now.

As the social isolation rules are eased and people who have recovered (and so have immunity) are able to circulate again, they would be able to undertake voluntary activities to support recovery efforts if their workplace was not functioning.

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Replying to John Stokdyk:
blue sheep
By NH
26th Mar 2020 09:49

John Stokdyk wrote:

Why not allocate a monthly figure to EVERYONE (less than £2500 a month) to enable them to eat, stay warm and pay for shelter, and balance the universal payment against increased taxes on those who are earning. The concept is simple - and appropriate to the hardships a lot of people are facing right now.

>

But how do you determine what is a fair amount for everyone - are you saying that the living costs are the same wherever you live in the UK for example - for some £2500 might hardly cover the rent, for others it might be a fortune.

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By claudialowe
26th Mar 2020 13:54

HMRC have the figures for 2018 - 2019. Allow the exact same rules as for employees, 80% of earnings for 2018 - 2019 upto a ceiling of £2,500 per month. They have also got most people's bank details.

An email I got from my MP intimidated that "many" self employed people will do well out of Covid-19. If they do, good for them, and it might well push them into higher rate tax, so alongside NI, the government will reclaim nearly 50% of any grants they give.

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Replying to claudialowe:
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By Farkhem Hall
27th Mar 2020 10:07

*** Intimated

I don't imagine most MPs to be intimidating...but then I don't know who your MP is.

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