Following intense pressure not to treat self-employed people differently to those who can benefit under the Government’s Job Retention Scheme, the Chancellor yesterday evening has outlined the details of a new rescue package for self-employed individuals, calling it ‘the next step in the economic fight in the coronavirus pandemic’.
How will it work?
Under the new self-employed income support scheme, the Government will pay those who are self-employed a taxable grant worth 80% of average monthly profits, capped at £2,500 per month. This mirrors the level of protection afforded to salaried employees under the PAYE system.
Unlike the requirements of the Job Retention Scheme affecting employees, self-employed people don’t have to remain at home, they can claim these grants and continue to do business.
The scheme is unlikely to be up and running before the beginning of June (although the Chancellor says they will look to do it faster) and will be open for at least three months.
Given the anticipated start date, the scheme is unlikely to resolve short term cash flow problems. However, small businesses may be eligible for a Coronavirus Business Interruption Loan, of which the Chancellor confirmed there had already been 30,000 enquiries in just four days.
How will the payments be calculated?
Income will be calculated by taking the average of income over the last three years. If you are unable to provide three years of records, HMRC will use its database to look at what it is able to establish based on the information available. The payments will be backdated to March.
Who is eligible?
The scheme is only open to anyone with trading profits of up to £50,000. According to the Chancellor, this covers 95% of self-employed people. Those who earn more will not qualify for a grant. Of the 5% of self-employed people above this income threshold, the Chancellor stated their average incomes were £200,000.
It is also only open to those who make the majority of their income from self-employment.
To minimise fraud, the scheme is only open to those already in self-employment who have submitted a tax return for 2019. However, those who did not submit their 2019 tax return by the due date of 31st January 2020, can still submit a tax return for 2019 until 23rd April 2020, allowing them to apply for the scheme thereafter.
How do I claim?
If you are self-employed, HMRC will contact you directly if you are eligible and pay the grant straight into your bank account after you have filled out an online form.
Who misses out?
The Chancellor confirmed that it is unable to provide this scheme to those who are very recently self-employed as it represents too much of a fraud risk. This means those who have recently become self-employed or freelance and are unable to submit a 2019 tax return will not be eligible to claim.
Those who have recently entered into self-employment were urged by the Chancellor to look either at loans or at the extra support that has been put into welfare system.
Those also missing out on the scheme include anyone with trading profits above £50,000. This threshold is a cliff-edge: those who have earned an average of £50,000.01 over the last three years will not qualify the scheme. There is clearly a huge gap between the cap set by the Government and the average earnings of the 5% who will not qualify, which is likely to lead to some very arbitrary outcomes: someone with earnings of £50,000 will benefit from the maximum grant and can continue to trade, while someone with earnings of £51,000 will receive nothing.
What other measures are available for the self-employed?
Those who are self-employed can now access Universal Credit in full (subject to eligibility criteria). The Chancellor stated that a self-employed person with a non-working partner and two children in rented accommodation could claim up to £1800 per month.
Those with under a £45 million turnover can also apply for an interest free business loan, and self-employment tax payments will now be due in January 2021 instead of July this year.
Before deciding to lay-off staff, the Chancellor has urged businesses to check what support may be available by looking online at https://www.businesssupport.gov.uk/.
Will the self-employed be taxed more in the future?
The Chancellor described the economic intervention announced as unprecedented in the history of the British state and hinted at future measures to equalise the treatment between the self-employed and employees when the crisis is over. He said, ‘in devising the scheme, it is now much harder to justify the inconsistent contributions into the system…we all need to pay in equally in the future’.
Much-needed and crucial guidance on the furlough scheme (affecting employees) was published by the Government late last night, so watch this space for further updates and please do not hesitate to contact us if you have any queries about how our employment team can help to support you and/or your business during this crisis.