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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
Editor AccountingWEB
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Rishi Sunak

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.


Replies (61)

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By Robert Hurn
27th Mar 2020 16:21

Do the self-employed earning less than their personal allowances qulaify for the grant? I have a cleaner earning circa £9,000 per annum, no other incoem so pays no tax

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Replying to bobhurn:
By seitler
27th Mar 2020 17:25

yes , why should the cleaner not qualify ?

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By Gone Sailing
27th Mar 2020 17:24

If HMG is reading this, also looking out for those who incorporated in IT year 2019/20 and have submitted SAs for years.

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By seitler
27th Mar 2020 17:28

what I am perplexed about is that unlike furloughing staff this seems to be a grant paid even if the self employed person continues to work. So would say delivery driver whose work may boom during the crisis or at worse be similar to normal be able to claim ? these people could end up better off than before. I'm wondering if there would be a clawback if your income exceeded 12 x £2500 in 19/20 ? (a bit like child benefit)

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Replying to seitler:
By Elvis11
28th Mar 2020 12:01

Agreed. So far we do not know

1) What measure they are going to use to determine income (taxable profit after capital allowances, before capital allowances, net adjusted income-as per Child Benefit/£50,000 threshold)

2) How losses will be treated? Will they be treated as Nil in the averaging calculation or a negative value?

3) How they are going to assess eligibility in relation to this condition "have lost trading/partnership trading profits due to COVID-19". Does this suggest the possibility of a clawback further down the road?

We need clarity on these matters ASAP. I have (understandably) been inundated with enquiries, but at the moment cannot advise clients fully. HMRC need to publish full details of the scheme without delay.

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Replying to Elvis11:
By Elvis11
28th Mar 2020 12:05

In addition, the £50,000 cliff edge seems absurd. Why are people who are over this threshold not entitled to the £2,500 top limit? Irrational and unfair in relation to the situation for employees.
Also, I found it hard to believe the Chancellor's claim that 95% of the self-employed will have average profits under £50,000.

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By paulsimmons
28th Mar 2020 17:06

How would the grant calculation work for a person with profits over £50k in 2016/17 followed by losses in 2017/18 an 2018/19?

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By Psychic Sue
28th Mar 2020 23:41

So my clients are asking what their averages are over the last 2 or 3 years.
I am slightly confused. Do we take Average Trading Profits before or after AIA

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Replying to Psychic Sue:
By Elvis11
29th Mar 2020 12:01

The definition of income has not yet been announced. Vital information which is required ASAP. In addition, how will losses be treated within the three year period?
And what is actually meant by "have lost trading/partnership trading profits due to COVID-19" in practical terms? Might there be a clawback if profits are recovered before the end of 20/21?

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Replying to Psychic Sue:
By rockallj
29th Mar 2020 17:15

Trading profits are after AIAs/ CAs. It's been like this for years.

In the past, CAs were a charge on income. But that went, what 10 years ago, so profit nowadays is always including CAs/AIAs etc.

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By tanyajackson
03rd Apr 2020 07:51

On a technical note....
Client's are obviously keen to know what they can claim. Does anyone know what HMRC consider "Trading Profits" on which the grant is calculated.
Are we talking
- Taxable Profits
- Net profits from your accounts
- does it include depreciation
- If it's taxable profits, are we removing capital allowances

Is there are guidelines on how to reach that all important figure?

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