Self-employed able to claim 80 per cent of monthly income in coronavirus support

27 Mar 2020 By Francis Churchill

New government grants welcomed, but questions raised around whether scheme is more generous than contributions for furloughed or permanently laid off workers

Freelancers and the self-employed who are financially struggling as a result of the coronavirus will be able to claim 80 per cent of their monthly income from the government, chancellor Rishi Sunak announced yesterday.

Under the new Self-Employed Income Support Scheme, self-employed people who faced a loss of income because of the outbreak will be able to apply for taxable grants worth 80 per cent of their average monthly profits, up to a maximum of £2,500 a month. The average will be calculated based on profits over the last three years.

The scheme will only be open to those who are already self-employed and filed a self-assessed tax return for 2019. It will not be available to high earners – defined as those with trading profits over £50,000.

The scheme will initially be open for three months and will be extended if deemed necessary.

Sunak said he hoped people would be able to access the scheme “no later than the beginning of June”.

“If you’re eligible, HMRC will contact you directly, ask you to fill out a simple online form, then pay the grant straight into your bank account,” he said.

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Peter Cheese, chief executive of the CIPD, welcomed what he described as a “comprehensive and generous package”. “The complexities of building a support package for the self-employed has no doubt proved a significant challenge. We are pleased to see the fair approach to creating parity between this support scheme and the job retention scheme for employees,” he said.

However, many self-employed people would already be suffering from financial losses caused by reduced hours and cancelled services, said Cheese. He said they would likely be “anxious” about having to wait until June to benefit from the scheme, and that it was important these people could access Universal Credit as soon as possible until the new scheme came into effect.

“There is also a need for guidance on whether people who can still work some hours or jobs, albeit in a greatly reduced capacity, are still able to benefit from this scheme,” said Cheese.

Tania Bowers, legal counsel and head of public affairs at the Association of Professional Staffing Companies (APSCo), welcomed the clarity the new measures gave the recruitment sector over how the self-employed would be supported. But she noted that many APSCo members would be earning above the maximum threshold to receive the support.

While some criticised the use of a maximum earning cap, Torsten Bell, chief executive of the Resolution Foundation, said the package could work out as more generous than that available to employees because it can be accessed by contractors who are still earning.

By contrast, furloughed employees cannot perform any work for their employer or another business while temporarily laid off. Employees who have had their hours cut or been made redundant also do not stand to benefit from the government’s job retention scheme.

“While some high earners or company owners are excluded, this is in fact more generous support for the self-employed than that set out for employees, with cash grants even for those not seeing big income hits from the current crisis, at a cost [to the government] of around £10bn,” he said.

“The groups that now stand out as being much less generously treated in this crisis are employees unlucky enough to lose their jobs, or see their hours cut during this crisis. Their lack of support stands out in stark contrast to a very significant package for the self-employed today,” said Bell.

Earlier this month, the government announced it was pushing back the rollout of its controversial changes to IR35 off-payroll tax rules in the private sector: a move that was welcomed by both businesses and the self-employed.

Under IR35, contractors deemed to be carrying out similar or the same work as a member of staff have to be taxed in the same way, with national insurance contributions and income tax deducted from their pay packets. The change, which will now come into force in April 2021, will see responsibility for deciding whether the rule applies to a particular individual move from the contractor to the employer, and is likely to increase the number of contractors caught by the rule.

In yesterday’s speech, Sunak raised the question of tax disparities between the employed and self-employed, suggesting this would be reviewed once the crisis was over. “I must be honest and point out that in devising this scheme… it is now much harder to justify the inconsistent contributions between people of different employment statuses.

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

However, Kim Sartin, partner in the employment practice at Baker McKenzie, said that while Sunak’s remark might “set some alarm bells ringing”, it was not clear what reforms the chancellor was referencing.

“It is not yet clear whether this refers to an intention to bring the changes to the IR35 regime back on the table or to bring national insurance rates for the self-employed in line with those for employees, or something else,” Sartin said.

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