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Help announced for coronavirus-hit self employed

Self-employed and freelance workers finally received news of the government's coronavirus support package on Thursday evening, but the Chancellor's much-mooted bailout is set to make them wait until the beginning of June for the pay out.

26th Mar 2020
Practice Editor AccountingWEB
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Rishi Sunak
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Telling self-employed workers that “you have not been forgotten”, Rishi Sunak’s third appearance at the daily Downing Street press briefing focused on new support for this, until now, overlooked part of the UK workforce affected by the coronavirus crisis.

“I know that many self-employed people are deeply anxious about the support available for them… To you, I say this: You have not been forgotten. We will not let you behind. We are all in this together,” said Sunak.

Sunak’s biggest lifeline to struggling self-employed was a new self-employed income support scheme that treats these workers with the same parity as furloughed employees, under the coronavirus jobs retention scheme.  

The new scheme will pay those “who make the majority of their income from self employment” 80% of average monthly profits for the last three years up to a maximum of £2,500.

Sunak confirmed that the scheme will be open for “at least three months” but as he has done with other COVID-19 measures, he has the option to extend it if necessary.

The scheme will will have an earnings cap of £50,000 and cover 95% of self-employed workers, the Chancellor said.

In order for self employed workers to qualify for this scheme, Sunak said they must have filed a 2018/19 SA return. The government added this condition to minimise fraud, but the Chancellor admitted that they’re designing these schemes at pace and “shouldn’t let perfect be the enemy of good”.  

People who started trading in 2019/20 would need to “look at the extra support in the welfare system”, Sunak advised.

The Chancellor added that anyone who missed the 31 January SA deadline had four weeks from today to submit their tax return in order to meet scheme’s requirements.

Little joy for one-director companies

The question everybody was raising on AccountingWEB during the week as whether directors of one-person limited companies would be able to claim self-employed income support.

The last paragraph in the self employed scheme guidance from HMRC did offer a semblance of hope for directors: “If you’re a director of your own company and paid through PAYE you may be able to get support using the Job Retention Scheme (JRS)."

But Blick Rothernberg’s Heather Self thinks that personal services companies (PSCs) will get little joy from the self-employed packaged announced.

Using the example of Joe the Plumber Ltd and Jane’s IT Support Ltd, Self explained on Twitter: “They are employees of their PSC, but it’s going to be difficult (impossible?) for them to be furloughed and qualify for the Jobs Retention Scheme.

“Even if they can qualify for the JRS, they would only get money up to 80% of their salary. Many PSCs pay their owner a very small salary and the rest as dividends - the dividends will not count for support.” 

 

More waiting to come

Self-employed workers have received some clarity from today’s announcement, but they still have a little more waiting to do. First HMRC will contact the self employed directly and ask they apply through an online portal, which isn’t available yet, and then these grants don’t kick in until June. The pay outs will then be backdated to 1 March.

Since June is over two months away, self- employed people unable to work will instead have to bridge the gap through accessing the business interruption loans or claiming universal credit in full.

NIC changes afoot?

What could be an interesting result of this new scheme mirroring the PAYE jobs retention scheme is the suggestion of NIC changes once the pandemic subsides. 

Sunak made an “observation” that there is a discrepancy in the self-employed and employed, which could lead to levelling income tax and NIC for the self employed.

“I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses,” he said.

“If we all want to benefit equally from state support, we must all pay in equally in future.”

Story so far…

Chancellor has grappled with the self-employed conundrum since unveiling his coronavirus jobs retention scheme for PAYE workers last Friday. Under the HMRC-administered scheme, the government pledged to cover up to 80% of a furloughed worker’s salary to a maximum of £2,500 a month.

The Chancellor used Brewdog, Timpsons and Pret as examples of businesses using the scheme to furlough thousands of staff, rather than laying them off.

Sunak’s jobs retention scheme took the headlines last time, while the self-employed were underwhelmed by a self-assessment payment deferral until January 2021 and the option to access benefits equivalent to SSP for employees.

Thursday’s announcement was the Chancellor’s third ‘mini-Budget’ in the two weeks the two weeks since his maiden Budget on 11 March.  

Highlights from his last appearance at the press briefing included a delay to VAT payments, which Sunak described as a £30bn cash injection for employers and an expansion to the coronavirus business interruption loan scheme from six to 12 months.  

Alternative self employed fixes 

Previously, the self-employed have criticised the Chancellor for a lack of parity with employees in last Friday’s announcement.  

“For many people that have seen their businesses disappear in the blink of an eye, things like statutory sick pay or universal credit just isn't enough,” Dr Adam Marshall from the British Chambers of Commerce told BBC’s Today programme earlier today.

In anticipation a rescue package earlier this week, Blick Rothernberg’s Self devised a short term solution that involved a tax-free cash grant of up to £5,000 which would broadly match the support offered to employees for the next three months. In the end, she took some comfort from the similarity of the Chancellor's three monthly payment solution to her one-off grant proposals.

In addition to Self’s suggestion, a group of entrepreneurs from the fintech sector used Open Banking to find another solution. The group, which included AccountingWEB contributors Lucy Cohen and Nick Levine, spent last weekend building the Covid Credit prototype that enables self-employed workers to use historic banking information to prove previous income and predicted future loss of income.

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Replies (65)

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By norstar
27th Mar 2020 08:27

Why means test what is capped? Do people making £60k have no outgoings?

How can it be right that someone earning 150k salary for tfl gets furloughed on 2500 a month but a plumber earning 60k self employed is deemed too profitable to claim?

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Replying to norstar:
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By killer33
27th Mar 2020 09:19

Someone earning 60k a year really should have some rainy day savings.

There is only so much borrowing the government can undertake on our behalf to pay for all of this and I believe it is right we spend that on those with low earnings

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Replying to killer33:
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By JAMAccounting
27th Mar 2020 09:28

I agree on the rainy day savings.

Same applies to employees with £60k+ salaries - yet they still receive the £2,500 furlough payment.

If he's hinting self employed should pay same NIC as employees for fair even payment - firstly the payments need to be fair and even.....

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Replying to JAMAccounting:
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By meadowsaw227
27th Mar 2020 09:34

Presumably it will be "fair and even" when they are paying similar tax & ni ?

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Replying to killer33:
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By norstar
27th Mar 2020 09:36

£50k is not low earnings and it also ignores the fact that Mr £100k salary gets £2500 a month when Mr £55k self employed gets nothing.

Also the assumption that everyone on over £50k doesn't need any help irritates me beyond belief.

If you make £60k a year through your own hard work, it's reasonable to assume you have a spending requirement on mortgages etc. When that income stops suddenly, you need support just like anyone else.

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Replying to norstar:
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By meadowsaw227
27th Mar 2020 09:36

That is no comfort to the majority of the workforce that is not on £50k

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Replying to killer33:
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By michael2012
27th Mar 2020 09:40

Harsh view point that if you earn £60k that you should have savings to see you through. If you earn £60k as self-employed and are the sole earner in your family you get nothing. Whereas a husband and wife both earning £30k each per annum as employees could get furloughed and receive 80% of their earnings. Both households have same level of income but one will receive £48,000 in government support and one nothing. Hardly fair.

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By spuddle
27th Mar 2020 09:23

Agreed.
If the people earning over £50k profit are only 5% then the additional cost of including them may not be significant.
Also, what is the relevance of someone generating over £50k profit having "earnings" (gross income) of £200k?

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By AnnAccountant
27th Mar 2020 09:33

For the "small salary and dividend companies" who are moaning:

As a 'self employed' accountant (who operates the above structure btw) the way I see it is that these structures were deliberately set up so that you fall between the two stools of employed and self employed.

This was done in order to obtain benefits such as:
- Paying virtually no NIC yet getting an NIC stamp
- Income tax deferral

Having deliberately fallen between those stools, it is a bit galling to hear shouts go up.

On another note, I wonder whether the gov will merely equalise NIC after all this.

Bolder measures, such as look 'through taxation' (which, btw, might also address 20 years of IR35 nonsense) or merging IT and NIC might be on the cards and could increase taxes a lot for people who currently don't pay a lot. Who knows what's in store.

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Replying to AnnAccountant:
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By lincolnartist
27th Mar 2020 09:37

There ARE other reasons for being incorporated, protection from being personally sued for example.

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By AnnAccountant
27th Mar 2020 11:20

Yes, but that doesn't force a person to adopt a "low salary plus dividends" remuneration strategy.

It is the cake of adopting that strategy which they now cannot eat.

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Replying to AnnAccountant:
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By JAMAccounting
28th Mar 2020 11:46

Can I just confirm what you are saying, because I can't get my head around it...

A one man bank Ltd Co director does not deserve to receive better help from the government because they chose to take their personal income in the form of salary and dividends at 26.5% tax - rather than paying salary to themselves at 45.8% tax?

It's 100% clear that when on your own without other staff, HMRC have decided your route for you?

On another note, if a director does have staff (like myself)... it really makes them feel great processing 80% wages for their employees to sit at home whilst they continue to try and struggle to find any form of income above the £832/mth they can receive for being furloughed.

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Replying to AnnAccountant:
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By norstar
27th Mar 2020 09:39

This gets my groat. The Government set up a transparent tax system that means you'd be a fool to voluntarily remain self-employed or pay a large salary/small dividend in your company.

That's not fraud. That's not unfair. That's not dishonest.

They rewarded the self employed and Ltd company SMEs with lower rates of tax to reflect the risk they take on by freelancing. To now get prissy over the fact that millions of people paid a low salary and took dividends instead is slightly unfair given that those people merely structured themselves in the most sensible way that the Government provided scope for.

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Replying to norstar:
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By petestar1969
27th Mar 2020 09:46

norstar wrote:

This gets my groat. The Government set up a transparent tax system that means you'd be a fool to voluntarily remain self-employed or pay a large salary/small dividend in your company.

That's not fraud. That's not unfair. That's not dishonest.

They rewarded the self employed and Ltd company SMEs with lower rates of tax to reflect the risk they take on by freelancing. To now get prissy over the fact that millions of people paid a low salary and took dividends instead is slightly unfair given that those people merely structured themselves in the most sensible way that the Government provided scope for.

Particularly as those people also now pay more income tax on their dividends.

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By chronus
27th Mar 2020 09:34

And what about those tax fiddlers and cheats whose SA assessments were increased as a result of tax enquiries into their returns. I wonder whether they will be laughing all the way to the bank or cry into their soups.

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By tonyholloway
27th Mar 2020 09:42

So does this really mean that a self-employed person with profits above £50k will not receive any support or, as would seem fair, these people would have their profits capped at £50k for the purposes of calculating support?

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Replying to tonyholloway:
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By petestar1969
27th Mar 2020 09:48

tonyholloway wrote:

So does this really mean that a self-employed person with profits above £50k will not receive any support or, as would seem fair, these people would have their profits capped at £50k for the purposes of calculating support?

I agree the cap idea seems fairer, just as its been capped for employed people. Maybe there will be a rethink?

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Replying to tonyholloway:
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By norstar
27th Mar 2020 12:09

HMRC guidance is clear - you can't apply if your average profits are over £50k: https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-...

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By [email protected]
27th Mar 2020 09:45

The announcement is massively better than nothing but if someone is running a proper 'firm' the issue is cashflow. Customers/clients are stood down and loathe to commit, work coming in has dried up but the rent needs to be paid etc. You can furlough the staff and even if you start with cash in the bank how long will it last? Drawings may only be a modest part of cash outgoings.
As for the £50k, one client does events, did OK last year so doesn't qualify for a bung but his formerly full diary is now empty. Universal Credit...

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By clarance.netto
27th Mar 2020 09:52

I cannot see the justice in RS’ self employed package.. He classes the 5% as earning more than 200k. Which planet is he living. In . .?
Save for the legal profession who have to remain SE anyone else with that level of earnings will have incorporated anyway
He wants to equalise the employed and SE. Well salaries of employed are tax deductible in arriving at profits.. drawings arent. So someone in the 50-80k self employed who paid a lot of tax and takes a drawing of say 30k, RS’ s standard average national wage, is completely excluded ,, even their tax and national ins paid is excluded in arriving at his 50k calculation.. so where is the level playing field,,, Accounting Web please address this..

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By johnacarpenter
27th Mar 2020 09:57

Just to be clear, if your business has rent for premises, leases for vehicles, and accountancy fees that need to be paid regularly. These are deductions from revenue to arrive at profit. How is this necessary expenditure funded?
By basing the package on profits it means that fixed costs are deducted from the amount payable.

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By bendybod
27th Mar 2020 09:58

So, I believe the advice to SME company directors is:
1. Business rates relief if they qualify
2. Furlough staff if possible, process payroll as normal and apply for the 80% as and when the system is up and running
3. Claim SSP back if any of remaining staff are actually sick with Covid 19 or any of their household are
4. Tighten your belts and live on whatever you do have saved up both in terms of the company and personally
5. If that isn't enough then, once you have deferred any expenditure that you possibly can, go to your bank for lending options.

Whether it is fair, equitable or anything else, is that the basic situation?

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Replying to bendybod:
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By Peter Bromiley
27th Mar 2020 10:00

Talk to your bank/lenders about a loan, an overdraft, mortgage holiday, HP holiday and credit card holiday.

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Replying to bendybod:
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By norstar
27th Mar 2020 12:11

You missed "spend your Feb/Mar/April VAT bill and dip into your July SA payment on account - but pay both back next year"

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By Peter Bromiley
27th Mar 2020 09:58

This isn't a bail-out for the self employed. It is a bail out for sole traders making less than £50k/year.

The self employed who trade through companies (and sole traders making over £50k) have basically been told 'you're on your own, mate'.

And not one political journalist seems to have grasped this basic point.

I expect many one person/family companies will be using their tax monies as the bail-out and let HMRC whistle for it later in the year. And given the injustice of this bail-out, I won't blame them.
I imagine there'll be a lot of company closures and new start-ups at that point.

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Replying to Peter Bromiley:
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By Gone Sailing
27th Mar 2020 11:05

"And not one political journalist seems to have grasped this basic point."
to be fair, Peston said it last night.

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By Ian McTernan CTA
27th Mar 2020 09:59

Prudent people operating through a limited company have been shafted. The banks count them as self employed, HMRC doesn't.

They don't extract all the profit from the company, struggle to build up their business working long (often unpaid) hours and are rewarded in hard times with nothing and a promise to tax them more in future.

And the difference between employees who take no risk and these business owners couldn't be more stark: one gets a 80% cushion, sits at home doing nothing and getting paid for it whilst the other gets nothing and watches their long hard years of struggle be wiped out or saddle themselves with massive debt to help pay for their employees to sit at home.

The Chancellor really shouldn't listen to HMRC, we've proved often enough that HMRC have not got a clue about real life out here (whilst they sit in their comfortable gold plated pensionable employment with zero risk of losing everything).

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By ugdiv
27th Mar 2020 10:00

As I read it, if a person suppliments pension income with self-employed work, and SE income forms less than 50% of total income, he gets nothing from this scheme.

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By Robert Hurn
27th Mar 2020 10:35

Do we know whether the calculation of SE profits will be net of any CAs/AIA? I assume HMRC will work on the taxable SE incoem for each year, but just wondered

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Replying to bobhurn:
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By Not Anonymous
27th Mar 2020 10:59

bobhurn wrote:

Do we know whether the calculation of SE profits will be net of any CAs/AIA? I assume HMRC will work on the taxable SE incoem for each year, but just wondered

The consensus seems to be that it is the taxable profit i.e. after all expenses, CA's etc etc. Presumably the figure that is used within the SA302 calculation.

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Replying to Not Anonymous:
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By Gone Sailing
27th Mar 2020 11:16

And what if first year of trading was 2018/19, with tax loss?

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By petestar1969
27th Mar 2020 11:34

Then you're stuffed,

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Replying to Not Anonymous:
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By Elvis11
27th Mar 2020 12:38

No guidance as far as I'm aware. I wondered whether it could be based on net adjusted income, as per assessing Child Benefit entitlement and the £50k threshold.

Also, what does the condition: "have lost trading/partnership trading profits due to COVID-19" actually mean? This can only be assessed retrospectively presumably? So the possibility of some sort of clawback through the 20/21 tax return?

Lots of gaps in the information about how this is actually going to work.

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Replying to bobhurn:
By Nick Graves
27th Mar 2020 11:13

bobhurn wrote:

Do we know whether the calculation of SE profits will be net of any CAs/AIA? I assume HMRC will work on the taxable SE incoem for each year, but just wondered

That was my first thought - AIAs for a new trade (or even just a new machine/van) often mean no taxable profit that year.

My second thought was that the HMRC Party are expecting to be long-firmed by almost all micro companies. It's inevitable that they will get their wish now.

Since this will all be paid for by fiat money that will be disappeared in the fullness of time, it does seem the most cack-handed way of doing things. Using the SA302 (or PAYE tax calc) as a basis would seem far more straightforward.

Even more galling when the crony-capitalists are being underwritten with a blank cheque.

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By Gone Sailing
27th Mar 2020 11:12

Under existing regulations, OMB Ltd Cos will be able to delay CT payments and only pay interest and no penalties.
So it would be helpful if the interest rate was reduced to 0%.
This will help somewhat.

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By roryg
27th Mar 2020 11:26

If you are self employed , have no other income and you submit your ye 5/4/20 tax return asap after 6 April, as its your 2nd year of trading and much better than 18/19 which was a nightmare start-up with profits of £12,000 - will the claim include the better year of 19/20 to increase average earnings or will the claim solely be based upon 18/19 ? I know the answer is probably not out there yet but would welcome thoughts!

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By petestar1969
27th Mar 2020 11:36

It won't include the 2019/20 figures. The Chancellor said it would be based on the figures returned to HMRC in January this year.

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Replying to roryg:
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By ChrisFinn88
30th Mar 2020 08:46

Apparently, they will not allow 19/20 due to people inflating profits & fraud.

While this makes little sense, it does. I believe the cost of the extra Tax & NI *could* be surpassed by the benefit payment made from HMRC, especially if this went on for longer than 3 months.

Very surreal times.

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By Sue Murby
27th Mar 2020 11:44

The majority of my clients turnover is under £50,000. Most of them work from home but some rent workshops. As someone above wrote some will have claimed AIAs for equipment or vans thereby reducing their profits. This handout doesn't help them. Since it'sin the form of a taxable grant I see no reason why the handout shouldn't be based on average turnover.

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By agknight
27th Mar 2020 12:24

Wonder if we can resubmit last years return swapping out AIA for WDA or no claim?

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By North East Accountant
27th Mar 2020 11:48

We've argued for years, particularly in IR 35 cases, that the small business owner is in business on his own account with all the risks and rewards that arise therefrom.

The government can't bail out every business and like a previous poster commented we have all (and have rightly advised our clients) taken advantage of the opportunities offered. Low salary, dividends, wife as director etc.

We've had the rewards (less tax) and took the risk. We paid our money and took our chances. It's tough but then that's the point of being in business on your own account.

If we wanted no risk we should have gone and worked in the public sector with flexi time, no chance of ever losing pay (or being sacked), sick pay for months on end, gold plated pension, loads of holidays, etc etc

We have no-one to blame but ourselves for the decisions we have taken.

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Replying to North East Accountant:
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By agknight
27th Mar 2020 12:26

There's risk to trading - reason for going Ltd, and in this instance realised risk that the government will shaft you.

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By Ken of Chester le Street
27th Mar 2020 11:58

Hello
Up till about 10 years ago, it would have been professionally negligent not to have turned Joe Bloggs the plumber into joe Bloggs Limited. in gordon Brown's day, the first £10,000 profit was liable to CT at 0%. But Mr Bloggs's true income is profits plus salary. I don't accept one of the replies below that it was tax planning (not avoidance) that put him to this position., therefore he should live with the consequences.
Is anyone lobbying the Chancellor on this point?

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Replying to Ken of Chester le Street:
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By lincolnartist
27th Mar 2020 15:31

Exactly. Some on here seem to be lumping those people into the same bracket as the Jimmy Carr tax avoidance schemes and saying "Tough, you've been caught out". It's a totally difference scenario.

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By Ken of Chester le Street
27th Mar 2020 11:58

Hello
Up till about 10 years ago, it would have been professionally negligent not to have turned Joe Bloggs the plumber into joe Bloggs Limited. in gordon Brown's day, the first £10,000 profit was liable to CT at 0%. But Mr Bloggs's true income is profits plus salary. I don't accept one of the replies below that it was tax planning (not avoidance) that put him to this position., therefore he should live with the consequences.
Is anyone lobbying the Chancellor on this point?

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Replying to Ken of Chester le Street:
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By Gone Sailing
27th Mar 2020 12:10

"true income is profits plus salary"
That's a very good point.

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By A.T.S.
27th Mar 2020 12:06

Many of my clients have (or had) a mix of self employed and employed work.
Anyone spotted any detail yet, or have thoughts, on how the test will be done that someone is 'majority' self employed? Especially where there might be some rental or savings income in the picture. Interested to know whether eg someone with 40:30:30 self-employed:employed:rent would qualify.

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Replying to A.T.S.:
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By bendybod
01st Apr 2020 10:54

Self employed income has to account for at least 50% of the income on the SATR.

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By gcg007
27th Mar 2020 12:29

HMRC know the self-employed average taxable profits for the past 3 years and a simple calculation will result in the grant payable....... Why wait until June? Why are HMRC sending the self employed a form, to go online and complete.... with 'boxes to tick' as Mr Sunak stated yesterday. Will the form ask if you have had any income in the past 3 months?

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Replying to gcg007:
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By NH
27th Mar 2020 13:06

There will be a box on there to tick that says you certify that you have been adversely affected thats for sure

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