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.
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.”
1/ The Government has announced a new Self-Employed Income Support Scheme to support those who work for themselves. pic.twitter.com/GTxO5Br4iO
— HM Treasury (@hmtreasury) March 26, 2020
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.